Question

you expect general motors (gm) to have a beta of 1.5 over the next year and the beta of exxon mobil (xom) to be 1.9 over the next year. also, you expect the volatility of general motors to be 50% and that of exxon mobil to be 35% over the next year. which stock has more systematic risk? which stock has more total risk? (the answer to the first question appears before the comma, the answer to the second question appears after the comma.)

Answer 1

Exxon Mobil (XOM) has more systematic risk due to its higher beta of 1.9, while General Motors (GM) has more total risk because of its higher volatility at 50%.

Step-by-step explanation:

To determine which stock has more systematic risk and which has more total risk, we need to understand the role of beta and volatility. The beta represents the systematic risk of a stock relative to the overall market, where a beta greater than 1 indicates more systematic risk than the market. Volatility, measured by standard deviation, indicates the total risk of the stock including both systematic and unsystematic risk.

Between General Motors (GM) with a beta of 1.5 and Exxon Mobil (XOM) with a beta of 1.9, Exxon Mobil has more systematic risk since its beta is higher. For total risk, we look at the volatility (standard deviation). GM has a volatility of 50% while XOM has a volatility of 35%. Thus, GM has a higher total risk compared to XOM due to its higher volatility.