Question 91

Which of the following statements regarding company and stock analysis is least accurate?

A)    A defensive company has earnings that are relatively insensitive to downturns in the economy.

B)   Cyclical stocks have betas greater than one.

C)   A growth stock is the stock of a firm with rapidly increasing earnings.

D)   Speculative companies have highly risky assets but have the potential to produce very high earnings.

The correct answer was C) A growth stock is the stock of a firm with rapidly increasing earnings.

Regardless of whether the firm has rapid earnings growth, if the firm’s stock price is too high it will not produce high risk-adjusted returns, and therefore it is not a growth stock. The other statements are accurate.

This question tested from Session 14, Reading 59, LOS a