ADFP Practice Test – Comprehensive Exam Prep 2025

Growth stocks are characterized by companies that are expected to grow at an above-average rate compared to their industry or the overall market. These companies typically reinvest their earnings into the business to fuel further development and expansion rather than returning profits to shareholders through dividends. This reinvestment strategy often positions them to achieve higher growth rates, making them attractive to investors looking for capital appreciation rather than income from dividends.

The other options highlight traits that do not align with the essence of growth stocks. For example, consistent dividend payments are more commonly associated with dividend-paying or income stocks, and slower earnings growth conflicts with the definition of growth stocks, which thrive on rapid growth. Lastly, while actively traded stocks might include growth stocks, trading volume is not a defining characteristic of what constitutes a growth stock.