Which of the following has the highest systematic risk?

Question

BlackTom AI · Accepted Answer

Beta measures systematic (market) risk relative to the overall market; standard deviation measures total volatility (systematic plus unsystematic). Thus a higher beta directly indicates greater exposure to market-wide risk.

1) Relevant knowledge points and concepts
- Systematic risk: the portion of an asset’s risk attributable to market-wide factors; cannot be diversified away. Measured by beta (β) in CAPM.
- Unsystematic risk: firm-specific risk; diversifiable. Total risk = systematic + unsystematic, and is measured by standard deviation (σ) of returns.
- CAPM relation: E[R] = Rf + β(E[Rm] − Rf), showing expected return compensation is proportional to β.

2) Step-by-step reasoning
- Compare items that specifically measure systematic risk: only beta values (β = 1.5 and β = 1) are direct measures of systematic risk.
- Standard deviations (σ = 1, σ = 1.5) measure total volatility, not directly the market-related component; they do not tell us how much of that volatility is systematic.

3) Calculations / intermediate steps (illustrative)
- If market risk premium (E[Rm] − Rf) = 6%, then the systematic-risk contribution to expected return:
  - For β = 1.5: 1.5 × 6% = 9%
  - For β = 1: 1 × 6% = 6%
  This numeric example shows β = 1.5 implies 50% more market risk exposure than β = 1.

4) Why the correct answer is correct
- Because β is the direct metric of systematic risk, the stock with β = 1.5 has greater market (systematic) risk than a stock with β = 1. The β = 1.5 stock is 50% more sensitive to market movements than the β = 1 stock.

5) Why the other options are incorrect
- "A stock with a standard deviation of 1" and "A stock with a standard deviation of 1.5": these measure total volatility, not the market component; without knowing how much of σ is market-driven, they cannot be ranked as having higher systematic risk than a given β.
- "A stock with a beta of 1": lower systematic risk than β = 1.5 (direct comparison of betas).

6) Conclusion
The stock with a beta of 1.5 has the highest systematic risk. This matches the provided answer: A stock with a beta of 1.5.

Which of the following has the highest systematic risk?单项选择题

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