The Distributions of Rates of Return for Companies AA and BB

question 119

True/False

The distributions of rates of return for Companies AA and BB are given below:
State of the Probability of
Economy This State Occurring AA BB
Boom 0.2 30% -10%
Normal 0.6 10% 5%
Recession 0.2 -5% 50%
We can conclude from the above information that any rational, risk-averse investor would be better off adding Security AA to a well-diversified portfolio over Security BB.

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