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problem: You are a risk-averse investor who is considering investing in one of the two economies. The expected return and volatility of all stocks in both economies is the same. In the first economy, all stocks move together—in good times all prices rise together and in bad times they all fall together. In the second economy, stock returns are independent—one stock in increasing in price has no effect on the prices of the other stocks. Which economy would you choose to invest in? describe your answer.

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