In finance, the word "risk" refers to the likelihood something will occur that differs from an expected outcome. For example, think about investing in the stock market where the actual return may be higher or lower than what was expected. There are factors that may determine if you would invest in a particular stock (P/E ratio, dividend yield, EPS, etc.). For this, pick two well-known companies in different industries (e.g., Ford and Facebook).

 Questions

1. Which companies did you choose, and what factors would you use to determine which company to invest in? Based on these factors, does one company seem riskier than the other?
2. How does the industry impact a company's risk?  Would the risk associated with the industry/company you selected influence your decision to invest?  Explain.
3. Look at the P/E ratios and dividend yield.  What does the P/E ratio say about each company? Are they overvalued or undervalued?  Why are the P/E ratio and dividend yield different?
4. Suppose you are risk averse, but you have $1,000 you want to invest in the market.  Which company would be the best to invest in?  As a risk averse investor, would you want to invest in individual stocks or in mutual funds? Explain.