The Distributions of Rates of Return for Companies AA and BB

question 94

True/False

The distributions of rates of return for Companies AA and BB are given below:
$$\begin{array} { l l l r } \text { State of the } &{ \text { Prabability of } } \\\text { Economy } & \text { This State Occurrine } & \mathrm { AA } & \underline { \mathrm { BB } } \\ \text { Bonm } & 0.2 & 30 \% &-10 \% \\\text { Narmal } & 0.6 & 10 \% & 5 \% \\\text { Recesfion } & 0.2 & - 5 \% & 50 \%\end{array}$$
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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The phenomenon that information learned in a specific mental or emotional state is more easily recalled when in that same state.