Cyclical Stock

A

A cyclical stock is a type of equity that is particularly sensitive to economic conditions and tends to perform well during periods of economic expansion and struggle during economic downturns. The correct answer to the question is A - their value is tied with the overall state of the economy.

Explanation of each answer choice: A. Their value is tied with the overall state of economy: As mentioned above, cyclical stocks tend to perform well when the economy is expanding and struggle during economic downturns. These types of stocks are often associated with companies that produce non-essential goods or services, such as luxury items or travel and leisure activities. When people have more disposable income and are feeling optimistic about the economy, they are more likely to spend money on these types of goods and services, which benefits the companies that produce them.

B. They are low-priced, speculative and risky securities: This answer choice describes penny stocks, which are low-priced securities that trade for less than $5 per share. Penny stocks are often considered to be speculative and risky investments because they are issued by small, unknown companies that may not have a proven track record of success. Cyclical stocks, on the other hand, can be issued by large, established companies and are not necessarily low-priced.

C. They have stable earnings and no extensive liabilities: This answer choice describes defensive stocks, which are equities that tend to perform well during economic downturns. Defensive stocks are often associated with companies that produce essential goods or services, such as utilities, healthcare, and consumer staples. These types of stocks tend to have stable earnings and are considered to be less risky than cyclical stocks.

D. None of the above: As explained above, answer choice A is the correct answer because cyclical stocks are tied to the overall state of the economy. Answer choices B and C describe different types of stocks - penny stocks and defensive stocks - that are not necessarily cyclical in nature. Therefore, answer choice D is incorrect.