You expect General Motors (GM) to have a beta of 1 over the next year and the beta of Exxon Mobil (XOM) to be 1.2 over the next year. Also, you expect the volatility of General Motors to be 30% and that of Exxon Mobil to be 40% over the next year. Which stock has more systematic risk? Which stock has more total risk?

Question

Quizplus · Accepted Answer

Systematic risk is measured by beta. Exxon Mobil has a higher beta (1.2) than General Motors (1), indicating more systematic risk. Total risk includes both systematic and unsystematic risk and is often measured by volatility. Exxon Mobil also has a higher volatility (40%) compared to General Motors (30%), indicating more total risk.

You Expect General Motors (GM) to Have a Beta of 1