Large-Cap Stock

B is correct. Large-cap stocks offer lower volatility and more stable earnings than small-cap stocks while still providing equity exposure and growth potential. For an investor approaching retirement who wants to reduce risk, reallocating from higher-volatility small-caps to more stable large-caps addresses the concern without abandoning equities entirely.

A is incorrect because maintaining a 70% small-cap allocation does not address Margaret's stated concern about volatility as she approaches retirement. Small-cap stocks typically exhibit 30-50% higher volatility than large-caps. C is incorrect because mid-cap stocks, while less volatile than small-caps, still carry more risk than large-caps and do not provide the stability Margaret needs near retirement. D is incorrect because eliminating all equity exposure is overly conservative and would sacrifice growth potential and inflation protection that equities provide, which Margaret may need for a 20-30 year retirement.

C is correct. Large-cap stocks are defined as companies with market capitalization of $10 billion or more. Market capitalization is calculated by multiplying the current share price by the total number of shares outstanding.

A ($2 billion) represents the typical threshold for mid-cap stocks, which generally range from $2 billion to $10 billion in market cap. B ($5 billion) falls within the mid-cap range and does not represent any standard market cap classification boundary. D ($50 billion) represents mega-cap stocks, a subset of large-caps with exceptionally large market capitalizations, but $10 billion is the threshold where a stock is first classified as large-cap.

B is correct. Large-cap stocks typically exhibit lower volatility due to their established business models, diversified revenue streams, and mature operations. They also have higher liquidity because of their widespread ownership and high daily trading volumes, making it easier to buy or sell large positions without significantly impacting the stock price.

A is incorrect because large-cap stocks generally have LOWER growth potential (they are already large and mature) and LOWER volatility (more stable) compared to small-cap stocks. Small-caps offer higher growth potential but with higher risk. C is incorrect because large-cap stocks typically have MORE analyst coverage (not less) due to their size and institutional interest, though dividend yields can vary. D is incorrect because mutual funds focused on large-cap stocks typically have LOWER expense ratios than small-cap funds, as large-cap stocks are more liquid and easier to trade, reducing transaction costs.

C is correct (the EXCEPT answer). Large-cap stocks typically do NOT exhibit rapid revenue growth or high price volatility. These characteristics are more commonly associated with small-cap stocks. Large-cap companies are established, mature corporations with stable earnings and lower volatility compared to smaller companies.

A is accurate: by definition, large-cap stocks have market capitalization of $10 billion or more. B is accurate: large-cap stocks have high liquidity due to widespread institutional and retail ownership, resulting in high daily trading volumes that allow investors to enter and exit positions easily without significant price impact. D is accurate: major indices like the S&P 500, Dow Jones Industrial Average, and Russell 1000 are heavily weighted toward large-cap stocks, and many large-caps are index constituents.

B is correct. Statements 1, 2, and 4 are accurate; statement 3 is false.

Statement 1 is TRUE: Large-cap stocks have high liquidity with daily trading volumes often in the millions of shares, allowing investors to buy or sell significant positions without materially affecting the stock price. This is especially important for investors with larger portfolios like this $500,000 account.

Statement 2 is TRUE: Large-cap stocks exhibit lower volatility than small-cap stocks due to their established businesses, diversified revenue streams, and mature operations. Historical data shows large-cap stocks typically have 30-50% lower volatility than small-caps.

Statement 3 is FALSE: Large-cap stocks generally offer LOWER growth potential than mid-cap stocks. Mid-cap companies ($2B-$10B market cap) are in an expansion phase with more room to grow, while large-caps are already mature companies with established market positions. Large-caps trade higher growth for greater stability.

Statement 4 is TRUE: Large-cap stocks receive extensive coverage from equity analysts at major investment banks and are heavily held by institutional investors (pension funds, mutual funds, insurance companies), which provides transparency and price efficiency.