The correct answer is: A. smaller.
A tighter probability distribution shows that the possible outcomes of an investment are more likely to be clustered around the expected return. This means that there is less uncertainty about the future return of the investment, and therefore less risk.
A wider probability distribution shows that the possible outcomes of an investment are more spread out. This means that there is more uncertainty about the future return of the investment, and therefore more risk.
For example, let’s say you are considering investing in two different stocks. Stock A has a probability distribution that is very tight, with most of the possible outcomes clustered around the expected return of $10 per share. Stock B has a probability distribution that is much wider, with possible outcomes ranging from $5 per share to $15 per share.
In this case, Stock A is a much less risky investment than Stock B. This is because the possible outcomes of Stock A are much more likely to be close to the expected return, while the possible outcomes of Stock B are much more spread out.
In general, a tighter probability distribution indicates a lower risk investment, while a wider probability distribution indicates a higher risk investment.