Small-Cap Stocks

### What is the typical market capitalization range for small-cap stocks? - [ ] Under $50 million - [ ] $300 million to $1 billion - [ ] Over $2 billion - [x] $300 million to $2 billion > **Explanation:** Small-cap stocks typically have a market capitalization between $300 million to $2 billion. ### Why are small-cap stocks generally more volatile than large-cap stocks? - [x] They are less established and have fewer resources. - [ ] They operate in the same sectors as large-cap stocks. - [ ] They are all technology companies. - [ ] They follow the same economic cycles as large-cap stocks. > **Explanation:** Small-cap stocks are usually less established with fewer resources, making them more susceptible to market fluctuations and economic downturns. ### What is the advantage of investing in small-cap stocks? - [ ] Guaranteed returns - [ ] No risk involved - [x] Potential for higher returns - [ ] No need for market research > **Explanation:** Small-cap stocks have the potential for higher returns due to their higher growth potential, making them attractive to investors willing to accept increased risk. ### How can an investor diversify their portfolio with small-cap stocks? - [ ] By only investing in technology small-caps - [ ] By investing exclusively in large-caps - [x] By including a mix of small-cap mutual funds or ETFs - [ ] By avoiding emerging market stocks > **Explanation:** Investors can diversify their portfolio by including a mix of small-cap mutual funds or ETFs, which spread risk across multiple small-cap companies. ### Which of the following investment vehicles specifically targets small-cap stocks? - [ ] Large-cap ETFs - [x] Small-cap mutual funds - [ ] Blue-chip stocks - [ ] Real estate investment trusts (REITs) > **Explanation:** Small-cap mutual funds and ETFs specifically target and invest in small-cap stocks. ### What is a key characteristic of microcap stocks compared to small-cap stocks? - [ ] They have higher market capitalization. - [x] They have a market capitalization under $300 million. - [ ] They are more established. - [ ] They have lower volatility. > **Explanation:** Microcap stocks have a market capitalization under $300 million, making them smaller and often riskier than small-cap stocks. ### What crucial factor should investors consider when investing in small-cap stocks? - [ ] Sector alignment - [x] Risk tolerance - [ ] Tax benefits - [ ] Geographical location of the company > **Explanation:** Investors should consider their risk tolerance due to the higher volatility and risk associated with small-cap stocks. ### How do small-cap stocks fit into a balanced investment portfolio? - [x] By providing growth potential and diversifying risk. - [ ] By adding guaranteed returns. - [ ] By focusing only on dividends. - [ ] By excluding large-cap stocks. > **Explanation:** Including small-cap stocks in a portfolio can provide growth potential and help diversify risk. ### What is the typical liquidity characteristic of small-cap stocks compared to large-caps? - [x] Lower liquidity - [ ] Higher liquidity - [ ] Similar liquidity - [ ] No impact on liquidity > **Explanation:** Small-cap stocks generally have lower liquidity compared to large-caps, which means they are traded less frequently and might have wider bid-ask spreads. ### Why might small-cap stocks appeal to long-term investors? - [ ] Because they offer dividends. - [ ] Because they are risk-free. - [x] Because they have the potential for significant growth over time. - [ ] Because they require no market monitoring. > **Explanation:** Small-cap stocks have the potential for significant growth over time, appealing to long-term investors who are willing to accept the associated risks.