You Expect General Motors (GM) to Have a Beta of 1.3

question 71

Multiple Choice

You expect General Motors (GM) to have a beta of 1.3 over the next year and the beta of Exxon Mobil (XOM) to be 0.9 over the next year. Also, you expect the volatility of General Motors to be 40% and that of Exxon Mobil to be 30% over the next year. Which stock has more systematic risk? Which stock has more total risk?

• A) XOM, GM
• B) XOM, XOM
• C) GM, XOM
• D) GM, GM

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Definitions:

Annual Effective Rate

The interest rate that is adjusted for compounding over a given period, showing the real return on savings or cost of borrowing.

Nominal Rate

The interest rate or rate of return quoted on a loan or investment, not adjusted for inflation.

Compounding Intervals

The frequency with which interest is added to the principal balance of an investment, affecting the total interest earned over time.

Annuity Due

A type of annuity where payments are made at the beginning of each period, as opposed to the end, which is more common in regular annuities.