b . " More can be said about risk , especially as to its nature , when we own more than one asset in our investment portfolio . " Define risk and explain how risk is affected if we diversify our investment by holding a variety of securities ? Question 3 : a . J and S Corporation is evaluating its financing requirements for the coming year . The firm has only been in business for 1 year , but its CFO predicts that the firm's operating expenses , current assets , net fixed assets , and current liabilities will remain at their current proportion of sales . Last year J and S Corp. had $ 15 million in sales with net income of $ 1.5 million . The firm anticipates that next year's sales will reach $ 18 million with net income rising to $ 3 million . Given its present high rate of growth , the firm retains all its earnings to help defray the cost of new investments . The firm's balance sheet for the year just ended is found below : J and S Corporation Balance Sheet 12/31/2000 $ 6,000,000 9,000,000 $ 15,000,000 % of Sales 40 % 6019 25 % NA Current assets Net fixed assets Total Liabilities and Owners ' Equity Accounts payable Long - term debt Total liabilities Common stock Paid - in capital Retained earnings Common equity Total $ 3,750,000 4,250,000 $ 8.000.000 2,000,000 2,800,000 2,200,000 7,000,000 ) $ 15,000,000 NA NA " Not applicable . This figure does not vary directly with sales and is assumed to remain constant for purposes of making next year's forecast of financing requirements .