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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 systematic risk?

Question

Quizplus · Accepted Answer

Systematic risk, also known as market risk, is the risk that cannot be diversified away because it is inherent in the overall market. Beta is a measure of systematic risk, where a beta of 1 indicates that the stock has the same systematic risk as the market. A beta greater than 1 indicates more systematic risk than the market, while a beta less than 1 indicates less systematic risk than the market.

In this case, Merck has a beta of 1.1, which is greater than Exxon-Mobil's beta of 0.9. This means that Merck has more systematic risk than Exxon-Mobil. Therefore, Merck has the highest systematic risk among the two stocks, regardless of their volatility levels.

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