Stuart, what question you have raised is nice to understand but not practical from the GMAT point of view. When it comes the chapter of quadrilaterals, the GMAT only considers, the basic figures and no glued figures are included to study their properties. Glued figures can have 'n' number of properties on their shape in a particular question.
Here the confusion was only between a rectangle and a square and so you could not decide whether it is only going to a rectangle.
Hence the correct answer is E.
The figure that you drew was correct but there can be 'n' number of figures with such properties.
I do not think that the GMAT will go so much out of the box.
In such a way you can draw a figure, whose all 4 sides are equal and also have the diagonals equal but still not frame a rhombus. Glued figures are out of scope on the gmat
What do the other guyzz have to feel about that...
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