Distinguish between growth and value investing styles.

• A. Growth stocks are undervalued and focus on low valuations.
• B. Value investing concentrates on firms with high growth potential.
• C. Growth emphasizes companies with rapid earnings growth and often higher valuations.
• D. Growth focuses on companies with strong growth prospects and higher valuations; value seeks undervalued stocks with lower valuations and fundamental strength.

Answer: (D)

Growth investing targets companies with rapid earnings expansion and often commands higher valuations because investors expect continued growth. Value investing looks for stocks priced below their intrinsic value, offering a margin of safety and usually featuring solid fundamentals at lower valuations. The statement that growth focuses on strong growth prospects and higher valuations, while value seeks undervalued stocks with lower valuations and fundamental strength, captures the essential distinction between the two styles. The other options misstate growth or value—growth isn’t defined by low valuations, value isn’t defined by high growth potential, and describing growth alone without the contrast doesn’t explain the difference.