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II. The distributions of rates of return for Companies AA and BB are given below: (10 marks) State of the Probability of Economy This State
II. The distributions of rates of return for Companies AA and BB are given below: (10 marks) 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% 2 Page a) 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. Do you agree? Briefly explain your rationale. b) Let's assume, James Green is considering building an investment portfolio (Portfolio Z) containing these two assets. Will it be beneficial for James Green to invest in the portfolio? Briefly explain why
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