Market Capitalization

A is correct. Given Marcus's high risk tolerance, long time horizon (30 years), and desire for increased growth potential, adding a 20% allocation to small-cap stocks provides exposure to higher growth opportunities while maintaining diversification through his remaining 80% large-cap position. Small-cap stocks historically offer higher growth potential with increased volatility, which Marcus can tolerate given his risk profile and time horizon.

B is incorrect because maintaining 100% large-cap doesn't address his goal of increasing growth potential. C is incorrect because Marcus has high risk tolerance and doesn't need bond allocation for volatility reduction (and the question states he wants to increase growth, not reduce risk). D is incorrect because eliminating all large-cap holdings removes important diversification and creates excessive concentration risk, even for a high-risk-tolerance investor.

A is correct. Small-cap stocks are defined by market capitalization (share price × shares outstanding) under $2 billion. This classification focuses on market value, not operational metrics like revenue or employees.

B ($10 billion) describes the upper threshold for mid-cap stocks, not small-cap. C (annual revenue) and D (employee count) are not how market capitalization categories are defined. Market cap is strictly a function of stock price times shares outstanding, representing the total market value of the company.

C is correct. Calculate: Market Cap = Share Price × Shares Outstanding = $75 × 40,000,000 shares = $3,000,000,000 = $3.0 billion. This would classify as a mid-cap stock (between $2B and $10B).

A ($1.5B) incorrectly divides instead of multiplying, or uses half the shares. B ($2.0B) appears to miscalculate the number of shares or price. D ($4.0B) might result from using incorrect share price ($100 instead of $75). Always multiply the current share price by total shares outstanding to get market cap.

C is correct (the EXCEPT answer). Market capitalization does NOT remain constant. It fluctuates continuously with stock price changes. Since market cap = share price × shares outstanding, any change in share price directly changes market cap (assuming shares outstanding remain constant). A 10% stock price increase results in a 10% market cap increase.

A is accurate: the formula is indeed Share Price × Shares Outstanding. B is accurate: small-cap stocks typically have higher volatility due to less liquidity, smaller business scale, and greater sensitivity to market changes. D is accurate: large-cap stocks are generally defined as having market capitalization over $10 billion.

C is correct. Statements 1, 3, and 4 are accurate.

Statement 1 is TRUE: Stock X at $15 billion exceeds the $10 billion threshold for large-cap classification.

Statement 2 is FALSE: Stock Y at $1.5 billion is below the $2 billion threshold, classifying it as small-cap, not mid-cap. Mid-cap stocks range from $2B to $10B.

Statement 3 is TRUE: Small-cap stocks (like Stock Y) typically offer higher growth potential because they have more room to expand, but they also exhibit greater volatility due to less established business models, lower liquidity, and greater sensitivity to market conditions.

Statement 4 is TRUE: Large-cap stocks (like Stock X) generally provide more stable, predictable returns because they are established companies with proven business models, but typically offer lower growth rates than smaller companies.