Question: 2

1. Friedman Manufacturing, Inc. has prepared the following information regarding two investments under consideration. Which investment is better, based on risk (as measured by the standard deviation) and return?

Common Stock A		Common Stock B
Probability	Return	Probability	Return
.20	12%	.10	4%
.50	18%	.30	6%
.30	27%	.40	10%
		.20	15%

2. 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?