QUESTION

A. Fair, Inc. is considering an investment in one of two common stocks. Given the information that follows, which investment is better, based on risk (as measured by the standard deviation) and return? Stock A Stock B Probability Return Probability Return .30 12% .20 15% .40 16% .30 6% .30 18% .30 13% .20 21%

B. Understanding the relationship between risk and return and how its affected by time is probably one of the most important aspects of investment Discuss. i. Different types of risk ii. Diversification reduces risk iii. Common measures of risk