Explanation:
The daily turnover of Stock Y is only 100 stocks, which indicates low liquidity. A stock with high liquidity would have a higher daily turnover, making it easier to buy or sell without causing a significant change in its price. Therefore, the low daily turnover of Stock Y does not make it suitable for inclusion in Kesler's portfolio.
Choices A and C are incorrect. Family holdings often indicate stability in the management and direction of a company but do not necessarily affect the decision-making in terms of liquidity.
Choice D is incorrect. The Mid Cap category itself is not a disqualifier for liquidity; many mid-cap stocks are quite liquid.
Ultimate access to all questions.
No comments yet.
Q.2430 Sam Kesler, a portfolio manager, is trying to select stocks for his portfolio. The investment policy statement of the fund indicates that the portfolio must consist of only liquid stocks. Kesler has the following investment options:
| Category | Stock | Information |
|---|---|---|
| Mid Cap | X | Going by the latest trading information available, the stock could be sold at $12.30 and purchased at $12.32. |
| Mid Cap | Y | The majority shareholding of the company rests with a family. The daily turnover of the shares equals 100 stocks only. |
| Large Cap | Z | The stock was last traded 2 days ago. |
| Small Cap | A | Going by the latest trading information available, the stock could be sold at $4.65 and purchased at $8.25. |
Which of the following statements is correct?
A
Stock Y must not be selected due to its large family holding.
B
Stock Y must not be selected due to its daily turnover.
C
Stock Y must be selected due to its large family holding.
D
Stock Y must not be selected as it belongs to the Mid Cap category.