- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 1. Portfolio Risk and Return: Part I
- Subject 1. Historical Return and Risk
CFA Practice Question
Investors are cautious about investing in small company stocks despite their high historical yields due to ______.
B. the lack of an efficient secondary market for these stocks
C. high capital gains tax on these stocks
D. the higher return available on corporate bonds
A. their erratic behavior over short-run periods
B. the lack of an efficient secondary market for these stocks
C. high capital gains tax on these stocks
D. the higher return available on corporate bonds
Correct Answer: A
User Contributed Comments 8
| User | Comment |
|---|---|
| katybo | Why not B? Small company stocks are often less liquid... |
| johnsk | A basically says the risk of these stocks are higher. In my opinion this should be the most imprtant factor to consider for any investors. |
| haarlemmer | Unfortunately, this question appears in this section. |
| mtcfa | There is an efficient secondary market for small stocks... that's why B is incorrect. |
| americade | Choice A includes B |
| magicchip | Not B because for the most part there is a liquid market for small company stocks. OTC, TSX-V in Canada, pink sheets, etc. |
| Gooner7 | B is slightly correct, as it is less liquid than a Dow30 stock, but A is rather obvious |
| johntan1979 | Agree with Gooner7. Some small caps trade less than 500 per day, while mega caps easily over 5 million (volume). A is a stronger choice than B. |