SIE Exam Question 340: Answer and Explanation
Question: 340
Penny stocks present added risk to customers because of
- A. their high surrender charges.
- B. their potential lack of liquidity.
- C. their potential for exposure to adverse tax consequences.
- D. their low potential for return.
Correct Answer: B
Explanation:
B - Penny stocks are stocks priced below $5 per share that do not trade on an exchange. They are frequently thinly traded, which means that there may be no market for the stock if customers want to liquidate their positions. Because of this market risk additional disclosure must be made to all buyers of penny stock.
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