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Series 86 Ch questions and answers verified 2024
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Series 86 Ch questions and answers verified 2024
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Series 86 Ch. 2Cyclical - correct answer ✔Stocks move with the business cycle
Defensive companies - correct answer ✔React less to changes in business
cycles than cyclical stocks: utilities, tobacco, alcohol, cosmetics, an food
companies.
Interest rate sensitive - correct answer ✔Utilities--react to changes in interest
rates. Since utilities ccompanies are highly leveraged, it becomes more
expensive for these companies to raise money when interest rates increase.
Interest charges increase, causing a drain on earnings, resulting in a decline
in prices of these securities.
Early to bull market - correct answer ✔Credit-related industries
construction
durable consumer goods
transportation
Middle to late bull market - correct answer ✔Capital goods
some financial stocks
Late bear market - correct answer ✔Nondurable consumer goods
Utilities
Some energy stocks
, First stage of industry cycle - correct answer ✔Birth and early development--
characterized by high growth rates and potentially high profits. Many new
intrants into the industry; however matched by many failures.
Second stage of industry cycle - correct answer ✔Marked by rapid growth.
However, after the competitive struggle of stage one, consolidation often
leaves fewer. larger companies in the industry. Quality improves at the same
timethat prices decline. See some consolidation.
Third stage of industry cycle - correct answer ✔Hard to differentiate from
stage two. Marked by mature growth, which, though significant, is not as rapid
as stage two. The industry's products begine to face competition from other
products and the markets begin to become saturated.
Earnings cycles - correct answer ✔New companies may experience negative
earnings. Once rapid growth begins, margins improve, causing earnings to
turn positive and begin to grow. As mature growth stage is reached, profit
margins begin to level out and gradually begin to decline. Though margins
decline, earinings do not yet decline since overall revenues are still
increasing, although at a slower rate. Once recenue is insufficient to offset
declining margins, earnings level off and begin to decline.
Ways for an industry to maintain a good rate of growth - correct answer
✔Steady penetration of rapidly growing markets
Accelerating penetration of markets with stable growth rates
Accelerating penetration of rapidly growing markets
Output analysis - correct answer ✔Defines markets for a product by the
industry that consumes the product. Engables the analst to use input-output
analysis to study an industry. This technique divides the economy into
industry groups a, and sales from each industry to each other industry are
determined. From this information, the analyst can locate the major markets
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