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:

Hemoglobin

Iron-containing respiratory pigment occurring in vertebrate red blood cells and in the blood plasma of some invertebrates.

Oxygen-rich Blood

Blood that has been oxygenated in the lungs and is being transported by the arteries to the rest of the body.

Mammary Glands

Specialized organs in mammals responsible for producing milk to nourish their young.

Constant Body Temperature

Pertains to the maintenance of a stable internal body temperature regardless of external conditions, characteristic of endotherms.