Find all School-related info fast with the new School-Specific MBA Forum

It is currently 16 Apr 2014, 17:17


GMAT Club Daily Prep

Thank you for using the timer - this advanced tool can estimate your performance and suggest more practice questions. We have subscribed you to Daily Prep Questions via email.

for You

we will pick new questions that match your level based on your Timer History

Your Progress

every week, we’ll send you an estimated GMAT score based on your performance


we will pick new questions that match your level based on your Timer History

Not interested in getting valuable practice questions and articles delivered to your email? No problem, unsubscribe here.

Events & Promotions

Events & Promotions in June
Open Detailed Calendar

CR Question

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
Joined: 10 Dec 2011
Posts: 11
Followers: 0

Kudos [?]: 0 [0], given: 0

CR Question [#permalink] New post 11 Jan 2012, 23:48
I am unable to comprehend such questions, please solve and explain.

Ques: Company Spokesperson: Over the past several years, our company has more than
doubled its revenues within the credit card division. However, over the same period,
the division's profits have steadily declined, largely as a result of a rapid increase in
default rates on credit card loans among our customers. It is time to recognize that
our previous strategy was flawed, since we failed to increase the average annual' percentage
rate (APR) charged on outstanding balances to compensate :fur the higher
default rates. According to our estimates, increasing the interest charged on outstanding
balances from an APR of9.S0/0 to an APR of 120/0 will be$lJlRcient to
compensate for the current rate of defaults and bring the division back to profitable
Which of the following statements would most seriously undermine a plan to
increase interest rates in order to spur profitable growth?
(A) Many other companies have experienced a similar trend in their default rates.
(B) The company's operating expenses are above the industry average and can be
substantially reduced, thus increasing margins.
(C) The rapid increase in default rates was due to a rise in unemployment, but
unemployment rates are expected to drop in the coming months.
(D) The proposed increase in the APR will, alone, more than double the company's
operating margins.
(E) An increase in the APR charged on credit card balances often results in higher
rates of default.
e-GMAT Representative
User avatar
Joined: 02 Nov 2011
Posts: 1577
Followers: 1060

Kudos [?]: 2526 [0], given: 164

GMAT Tests User
Re: CR Question [#permalink] New post 12 Jan 2012, 05:32
Expert's post

The answer is E. I can explain how to approach this problem, however it would be best if you can write what you did not understand in this question. that way I can tailor my explanation. A few things will help me:

1. Were you able to comprehend the passage.
2. Were you able to separate the premises and conclusion.
3. Could you prethink any weakeners.

let me know the answers to the above and I will be happy to clarify any doubts.


Rajat Sadana

Free trial:Click here to start free trial (100+ free practice questions)
Free Session: September 14: Learn how to define your GMAT strategy, create your study plan and master the core skills to excel on the GMAT. Click here to attend.

Joined: 10 Dec 2011
Posts: 11
Followers: 0

Kudos [?]: 0 [0], given: 0

Re: CR Question [#permalink] New post 12 Jan 2012, 21:57
Dear Rajat,
First of all thanks for your rationale.
As far as my understanding is concerns, Please see:

What I comprehend:
Initially revenues were doubled however, profits steady decreased, Profits can be decreased as
suppose, 1st yr. Revenues cost of production Profits
(Say) 20 10 10
2nd Yr. Revenues Cost of production Profits
(Say) 40 35 5

The passage is saying that this decrease in the profits is due to Increased default rates on credit loans. The conclusion is, previous is flawed because the company hasn't increased APR which will compensate for Increased default rates and thus bring back the firm to gain profits.

One weakness could be that only rise in APR % is not a solution to compensate,

Awaiting your response.
Re: CR Question   [#permalink] 12 Jan 2012, 21:57
    Similar topics Author Replies Last post
New posts CR Question ayushi 5 09 Oct 2006, 07:23
New posts CR The question to Vavali 6 21 Mar 2008, 12:56
New posts CR Questions vd 1 20 Apr 2008, 23:42
New posts CR Questions geeturaju 1 13 May 2008, 22:15
New posts CR-1000 CR QUESTIONS perfectstranger 0 22 Jul 2008, 14:10
Display posts from previous: Sort by

CR Question

  Question banks Downloads My Bookmarks Reviews Important topics  

GMAT Club MBA Forum Home| About| Privacy Policy| Terms and Conditions| GMAT Club Rules| Contact| Sitemap

Powered by phpBB © phpBB Group and phpBB SEO

Kindly note that the GMAT® test is a registered trademark of the Graduate Management Admission Council®, and this site has neither been reviewed nor endorsed by GMAC®.