When Asked If There Are More Ice Cream Cones Sold

question 7

Multiple Choice

When asked if there are more ice cream cones sold in November or July,Mary answers July immediately.She is surprised to find out that there is little to no difference between the two months in terms of ice cream cone sales.Mary's error is most clearly an example of

• A)imaginary correlation.
• B)common sense.
• C)Superstitions.
• D)illusory correlation.

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Definitions:

Diversifiable Risk

A type of investment risk that can be reduced or eliminated in a portfolio through diversification, as it is not correlated with market movements.

Risk Premium

The extra return expected by an investor for holding a risky asset, over and above the risk-free rate.

Discount Rate

The interest rate used in calculating the present value of future cash flows. It reflects the time value of money and risk.

Real Interest Rate

The interest rate that has been adjusted to remove the effects of inflation, reflecting the real cost of funds to the borrower and the real yield to the lender or investor.