SIE Exam Question 985: Answer and Explanation

Question: 985

Which of the following is/are correct regarding cyclical stocks?

(1) When the economy is growing, demand usually strengthens and cyclical companies are able to make large profits.

(2) When the economy is declining, cyclical companies are hurt by decreases in demand and are less profitable.

• A. (1) only
• B. (2) only
• C. Both (1) and (2) are correct.
• D. Neither (1) or (2) are correct.

Correct Answer: C

Explanation:

Cyclical stocks tend to prosper in growing and expanding economies, and do poorly during down business cycles.