BREAKING: Target Test Prep releases Brand New 2026 On Demand GMAT prep course

Redeem

Investment

This topic has expert replies
Post new topic Post Reply
Previous Topic Next Topic
Master | Next Rank: 500 Posts
Posts: 313
Joined: Tue Oct 13, 2015 7:01 am
Thanked: 2 times

Investment

by jain2016 » Mon Mar 21, 2016 9:58 am
A leading investment firm has issued new rules that prevent its portfolio managers from short selling stock for their clients. One portfolio managers has concluded that this restriction prevents portfolio managers from providing above-average investment returns for their corporate clients.

Which of the following is an assumption that would allow the portfolio manager's conclusion to be properly drawn ?

A) Investment firm should not restrict the ways in which portfolio managers manage their client's funds.

B) Portfolio managers can provide above-average returns for their clients only by short selling stocks.

C) Short selling is a technique used primarily for corporate clients.

D) Portfolio managers often used short selling techniques to provide above-average returns for corporate clients.

E) Before the investment firm issued the new rules, portfolio managers were not permitted to short sell stocks.

OA D

Can you please explain why not B
Top
Source: — Critical Reasoning |
User avatar
GMAT Instructor
Posts: 15539
Joined: Tue May 25, 2010 12:04 pm
Location: New York, NY
Thanked: 13060 times
Followed by:1906 members
GMAT Score:790

by GMATGuruNY » Tue Mar 22, 2016 5:17 am
jain2016 wrote:A leading investment firm has issued new rules that prevent its portfolio managers from short selling stock for their clients. One portfolio managers has concluded that this restriction prevents portfolio managers from providing above-average investment returns for their corporate clients.

Which of the following is an assumption that would allow the portfolio manager's conclusion to be properly drawn ?

A) Investment firm should not restrict the ways in which portfolio managers manage their client's funds.

B) Portfolio managers can provide above-average returns for their clients only by short selling stocks.

C) Short selling is a technique used primarily for corporate clients.

D) Portfolio managers often used short selling techniques to provide above-average returns for corporate clients.

E) Before the investment firm issued the new rules, portfolio managers were not permitted to short sell stocks.
Premise:
A leading investment firm has issued new rules that prevent its portfolio managers from short-selling stock for their clients.
Conclusion:
This restriction prevents portfolio managers from providing above-average investment returns for their corporate clients.

This CR assumes that there is a LINK between SHORT-SELLING STOCK and PROVIDING ABOVE-AVERAGE RETURNS.

Apply the NEGATION TEST.
When the correct answer choice is negated, the conclusion will be invalidated.

B, negated:
Portfolio managers cannot provide above-average returns for their clients only by short selling stocks.
In other words, portfolio managers CAN provide above-average returns IN OTHER WAYS, invalidating the conclusion that the new restriction prevents portfolio managers from providing above-average investment returns for their corporate clients.
Since B invalidates the conclusion, B is the correct assumption: WHAT MUST BE TRUE for the conclusion to be valid.

The correct answer is B.

D, negated:
Portfolio managers did not often use short selling techniques to provide above-average returns for corporate clients.
In other words, portfolio managers sometimes DID use short-selling techniques, possibly STRENGTHENING the conclusion that -- because of the new rule preventing short-selling -- at least some clients will not see above-average returns.
Since the negation of D offers at least partial support for the conclusion, D is NOT the correct assumption.
Eliminate D.
Private tutor exclusively for the GMAT and GRE, with over 20 years of experience.
Followed here and elsewhere by over 1900 test-takers.
I have worked with students based in the US, Australia, Taiwan, China, Tajikistan, Kuwait, Saudi Arabia -- a long list of countries.
My students have been admitted to HBS, CBS, Tuck, Yale, Stern, Fuqua -- a long list of top programs.

As a tutor, I don't simply teach you how I would approach problems.
I unlock the best way for YOU to solve problems.

For more information, please email me (Mitch Hunt) at [email protected].
Student Review #1
Student Review #2
Student Review #3
Top
Post new topic Post Reply
• Page 1 of 1