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%.

Question

Darren

Business

29 December, 13:50

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%.

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Answers (1)

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Nathalie Ritter · Answer 1

Which stock has the highest total risk?

Exon Mobil has a higher risk

Explanation:

Exon Mobil has a higher risk because it has a volatility of 42% which is higher than the 24% volatility of Merck's stock. The stock with a higher volatility is more riskier as it's returns are less stable and deviate from the mean more. Although Exxon has a lower Beta then Merck we cant call it less riskier because Beta only explains how the price of the stock move in relation to the market but does not explain all the risks of the stock, where as volatility takes into account all the risks of a stock.