Portfolio Analysis / Market Analysis
UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Cyclical stock - Correct answers✔✔the common stock of companies whose market value and
performance changes directly with the phases of the business cycle. Examples include companies
that produce durable goods or that are involved in building homes.
Counter-cyclical stock - Correct answers✔✔the common stock of companies whose market
value and performance move opposite to the phases of the business cycle. Companies that
produce basic food products are counter-cyclical because when peoples' income declines, they
eat out less and eat in more.
A counter-cyclical stock would be characterized by which of the following?
I Earnings variability due to changes in economic growth
II No earnings variability due to changes in economic growth
III A stock price that tends to move in the same direction of the market as a whole
IV A stock price that tends to move in the opposite direction of the market as a whole
A. I and III
B. I and IV
C. II and III
D. II and IV - Correct answers✔✔B. I and IV
Counter-cyclical stocks are those whose performance runs counter to the economic cycle. In
good economic times, these stocks don't do as well; in poor economic times, these stocks do very
well. An example of a counter-cyclical stock is a basic food producer - in good times, people eat
out more and do less cooking at home; in bad times, people eat out less and do more cooking at
,home. Thus, in bad times, the earnings of a basic food producer would improve, and its stock
price would rise. In good times, the earnings of a basic food producer would deteriorate, and its
stock price would fall.
WRONG SERIES SMART PLUS 7
The best answer is A.
The performance of cyclical stocks follows the business cycle. In times of GDP expansion, they
do well; in times of recession, they do poorly. Their earnings and stock prices follow the
economic cycle. The classic cyclical stocks are home building, automobile manufacturers and
durable goods producers. All of these purchases are deferrable in hard times.
Which of the following stocks would be considered counter-cyclical?
A. Automobile manufacturer
B. Pharmaceutical manufacturer
C. Gold mining company
D. Computer software developer - Correct answers✔✔C. Gold mining company
The performance of counter-cyclical stocks moves opposite to the economic cycle. Gold mining
stocks are counter-cyclical. In bad economic times, people "flee to safety," selling stocks that are
adversely affected in bad times and buying gold stocks - since gold tends to hold its value in
good times or bad.
In contrast, the performance of cyclical stocks follows the business cycle. In times of GDP
expansion, they do well; in times of recession, they do poorly. The classic cyclical stocks are
home building, automobile manufacturers and durable goods producers. All of these purchases
are deferrable in hard times.
, Pharmaceutical companies are defensive and are not affected by the business cycle; in good
times or bad, people must take prescribed drugs.
Computer software companies are growth companies.
Equity securities of which issuer are the LEAST defensive?
A. Defense
B. Pharmaceuticals
C. Grocers
D. Utilities - Correct answers✔✔A. Defense
A defensive industry is one which is not greatly affected by economic downturns.
Pharmaceuticals, grocers, and utilities are all defensive. If the economy sours, people still buy
drugs, food, and use electricity. The defense industry is the least defensive of the choices offered.
In periods of economic slowdowns, the government collects less taxes, and tends to reduce arms
and expensive defense systems orders.
Which of the following securities is NOT directly interest rate sensitive?
A. Utility Stocks
B. Corporate Bonds
C. Preferred Stocks
D. Growth Stocks - Correct answers✔✔D. Growth Stocks
UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS
Cyclical stock - Correct answers✔✔the common stock of companies whose market value and
performance changes directly with the phases of the business cycle. Examples include companies
that produce durable goods or that are involved in building homes.
Counter-cyclical stock - Correct answers✔✔the common stock of companies whose market
value and performance move opposite to the phases of the business cycle. Companies that
produce basic food products are counter-cyclical because when peoples' income declines, they
eat out less and eat in more.
A counter-cyclical stock would be characterized by which of the following?
I Earnings variability due to changes in economic growth
II No earnings variability due to changes in economic growth
III A stock price that tends to move in the same direction of the market as a whole
IV A stock price that tends to move in the opposite direction of the market as a whole
A. I and III
B. I and IV
C. II and III
D. II and IV - Correct answers✔✔B. I and IV
Counter-cyclical stocks are those whose performance runs counter to the economic cycle. In
good economic times, these stocks don't do as well; in poor economic times, these stocks do very
well. An example of a counter-cyclical stock is a basic food producer - in good times, people eat
out more and do less cooking at home; in bad times, people eat out less and do more cooking at
,home. Thus, in bad times, the earnings of a basic food producer would improve, and its stock
price would rise. In good times, the earnings of a basic food producer would deteriorate, and its
stock price would fall.
WRONG SERIES SMART PLUS 7
The best answer is A.
The performance of cyclical stocks follows the business cycle. In times of GDP expansion, they
do well; in times of recession, they do poorly. Their earnings and stock prices follow the
economic cycle. The classic cyclical stocks are home building, automobile manufacturers and
durable goods producers. All of these purchases are deferrable in hard times.
Which of the following stocks would be considered counter-cyclical?
A. Automobile manufacturer
B. Pharmaceutical manufacturer
C. Gold mining company
D. Computer software developer - Correct answers✔✔C. Gold mining company
The performance of counter-cyclical stocks moves opposite to the economic cycle. Gold mining
stocks are counter-cyclical. In bad economic times, people "flee to safety," selling stocks that are
adversely affected in bad times and buying gold stocks - since gold tends to hold its value in
good times or bad.
In contrast, the performance of cyclical stocks follows the business cycle. In times of GDP
expansion, they do well; in times of recession, they do poorly. The classic cyclical stocks are
home building, automobile manufacturers and durable goods producers. All of these purchases
are deferrable in hard times.
, Pharmaceutical companies are defensive and are not affected by the business cycle; in good
times or bad, people must take prescribed drugs.
Computer software companies are growth companies.
Equity securities of which issuer are the LEAST defensive?
A. Defense
B. Pharmaceuticals
C. Grocers
D. Utilities - Correct answers✔✔A. Defense
A defensive industry is one which is not greatly affected by economic downturns.
Pharmaceuticals, grocers, and utilities are all defensive. If the economy sours, people still buy
drugs, food, and use electricity. The defense industry is the least defensive of the choices offered.
In periods of economic slowdowns, the government collects less taxes, and tends to reduce arms
and expensive defense systems orders.
Which of the following securities is NOT directly interest rate sensitive?
A. Utility Stocks
B. Corporate Bonds
C. Preferred Stocks
D. Growth Stocks - Correct answers✔✔D. Growth Stocks
