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netigen
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Over the last two years, who made more money investing in the stock market, Leslie or Kerri?
(1) Leslie made an average (arithmetic mean) return of 20%, and Kerri made an average (arithmetic mean) return of 5%.
(2) Kerri started with two times as much money as Leslie.
A. Statement (1) BY ITSELF is sufficient to answer the question, but statement (2) by itself is not.
B. Statement (2) BY ITSELF is sufficient to answer the question, but statement (1) by itself is not.
C. Statements (1) and (2) TAKEN TOGETHER are sufficient to answer the question, even though NEITHER statement BY ITSELF is sufficient.
D. Either statement BY ITSELF is sufficient to answer the question.
E. Statements (1) and (2) TAKEN TOGETHER are NOT sufficient to answer the question, meaning that further information would be needed to answer the question.
(E) Though we know Leslie and Kerri's average returns, we have little idea as to what their total returns are.
These abstract questions are best solved with Plug In. This one can be solved by plugging in 1. For example, if Leslie made a 100% return one year and a -60% return the next year, the average return would be (100% – 60%)/2 = 20%.
However, Leslie would only be left with year one 100% and -60% = (1 + 1) (1 – 0.6) = 2(0.4) = 80% of her original investment. This means that she lost 20%!
So statement (1) is insufficient.
Furthermore, statement (2) is clearly insufficient by itself because no returns are given.
Combined with statement (1), statement (2) doesn’t make the distribution of returns any clearer, so the answer is (E).
My feedback to the author:
This question is not correct from GMAT point of view since in the given answer the author is assuming that the returns from the first year will be reinvested. Question does not clearly state that the returns from each year are reinvested the next year.
If one assumes that he gains are not invested again then final gain would be +20% instead of -20% for Leslie and in that case the answer would change to C.
Experts here please comment if my thinking is correct or am I totally screwed.
(1) Leslie made an average (arithmetic mean) return of 20%, and Kerri made an average (arithmetic mean) return of 5%.
(2) Kerri started with two times as much money as Leslie.
A. Statement (1) BY ITSELF is sufficient to answer the question, but statement (2) by itself is not.
B. Statement (2) BY ITSELF is sufficient to answer the question, but statement (1) by itself is not.
C. Statements (1) and (2) TAKEN TOGETHER are sufficient to answer the question, even though NEITHER statement BY ITSELF is sufficient.
D. Either statement BY ITSELF is sufficient to answer the question.
E. Statements (1) and (2) TAKEN TOGETHER are NOT sufficient to answer the question, meaning that further information would be needed to answer the question.
(E) Though we know Leslie and Kerri's average returns, we have little idea as to what their total returns are.
These abstract questions are best solved with Plug In. This one can be solved by plugging in 1. For example, if Leslie made a 100% return one year and a -60% return the next year, the average return would be (100% – 60%)/2 = 20%.
However, Leslie would only be left with year one 100% and -60% = (1 + 1) (1 – 0.6) = 2(0.4) = 80% of her original investment. This means that she lost 20%!
So statement (1) is insufficient.
Furthermore, statement (2) is clearly insufficient by itself because no returns are given.
Combined with statement (1), statement (2) doesn’t make the distribution of returns any clearer, so the answer is (E).
My feedback to the author:
This question is not correct from GMAT point of view since in the given answer the author is assuming that the returns from the first year will be reinvested. Question does not clearly state that the returns from each year are reinvested the next year.
If one assumes that he gains are not invested again then final gain would be +20% instead of -20% for Leslie and in that case the answer would change to C.
Experts here please comment if my thinking is correct or am I totally screwed.
