The Distributions of Rates of Return for Companies AA and BB

question 91

True/False

The distributions of rates of return for Companies AA and BB are given below: $\begin{array}{llrr}\text { State of the}& \text {Probability of }\\ \underline{\text { Economy }} & \underline{ \text { This State Occurring }} & \underline{\text { A.A }} & \underline{\text { BB }} \\\text { Boom } & 0.2 & 30 \% & -10 \% \\\text { Normal } & 0.6 & 10 \% & 5 \% \\\text { Recession } & 0.2 & -5 \% & 50 \%\end{array}$

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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Definitions:

Unconsummated Transaction

A business deal or trade that has been negotiated but not finalized or completed.

Tax

A compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund government spending and various public expenditures.

Capitalism

An economic system characterized by private ownership of the means of production, competition, and the pursuit of profit.

Self-Interest

Self-interest is a concept in economics that denotes individuals acting in pursuit of their own benefits, often driving economic transactions and market allocations.