You expect Wesfarmers (WES) to have a beta of 1.3 over the next year and the beta of Qantas (QAN) to be 0.9 over the next year. Also, you expect the volatility of WES to be 40% and that of QAN to be 30% over the next year. Which company has more systematic risk? Which company has more total risk?

Question

Quizplus · Accepted Answer

Systematic risk refers to the risk that affects the overall market and cannot be diversified away, while total risk includes both systematic and unsystematic risk. Beta measures systematic risk. WES has a higher beta than QAN, indicating that it has more systematic risk. However, the volatility of WES is higher than that of QAN, indicating that WES has more total risk. Therefore, choice C is the correct answer.

You Expect Wesfarmers (WES) to Have a Beta of 1