Which one of the following statements must be true?
A) All securities are projected to have higher rates of return when the economy booms versus when it is normal.
B) Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment.
C) The highest probability of occurrence must be placed on a normal economy versus either a boom or a recession.
D) The total of the probabilities of the economic states can vary between zero and 100 percent.
E) Various economic states affect a portfolio's expected return but not the expected level of risk.

Question

Quizplus · Accepted Answer

Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment. This statement is true because the economy is subject to changes and it is important to consider different possibilities while making investment decisions. The other statements are not necessarily true. For example, some securities may perform better during a normal economy than during a boom, and the probabilities of the economic states should add up to 100%. Economic states can also affect both the expected return and the expected level of risk of a portfolio.

Which One of the Following Statements Must Be True