Cyclic Stock

A

A cyclic stock is a type of stock that is closely tied to the overall state of the national economy. The correct answer is option A: "Their value is tied with the overall state of the national economy." Let's break down the characteristics of cyclic stocks and explain why this is the correct answer:

A. Their value is tied with the overall state of the national economy: Cyclic stocks are highly influenced by the business cycle and tend to perform well when the economy is expanding and performing strongly. They are often associated with industries that are sensitive to economic conditions, such as manufacturing, construction, automobiles, and consumer durables. When the economy is booming, these industries thrive, leading to increased demand and profitability for cyclic stocks. Conversely, during economic downturns or recessions, these industries may struggle, and cyclic stocks may experience declines in value.

B. They are low priced, speculative, and risky securities: This statement describes penny stocks or speculative stocks, which are generally characterized by their low price and high risk. These stocks are not specifically tied to the national economy and can be found in various industries. While cyclic stocks can be volatile and risky, it is not accurate to categorize them solely as low-priced or speculative securities.

C. They have stable earnings and no extensive liabilities: This statement describes defensive stocks rather than cyclic stocks. Defensive stocks are known for their stability and consistency in earnings, often found in industries like utilities, healthcare, and consumer staples. These stocks tend to perform well regardless of the state of the national economy. Cyclic stocks, on the other hand, are characterized by their sensitivity to economic fluctuations and may experience irregular earnings depending on the economic conditions.

D. They have irregular earnings and extensive liabilities too: While it is true that cyclic stocks can have irregular earnings, it is incorrect to state that they have extensive liabilities. The presence of extensive liabilities is not a defining characteristic of cyclic stocks. Liabilities refer to a company's debts and obligations, and they can vary across different industries and individual companies. Cyclic stocks may experience fluctuations in earnings, but their liabilities are not necessarily extensive or different from other types of stocks.

In summary, the correct characteristic of a cyclic stock is that its value is closely tied to the overall state of the national economy (option A).