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Suppose that in the coming year,you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9,and Merck's stock to have a volatility of 24% and a beta of 1.1.The risk free interest rate is 4% and the market's expected return is 12%.
-Which stock has the highest total risk?

Question

Quizplus · Accepted Answer

Total risk is measured by the stock's volatility, so Exxon-Mobil with a volatility of 42% has a higher total risk than Merck with a volatility of 24%. Beta is a measure of systematic risk, but it is not directly related to total risk. Therefore, the answer is not B or D. The risk-free rate and market's expected return are not factors in determining total risk. Therefore, the answer is not A.

Use the Information for the Question(s)below