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Please reason out your choices..........
During the late eighties when mutual fund companies were rapidly expanding their share of the financial service industry, Kidder-Peabody Brokerage surveyed owners of stocks and asked them whether they would be more willing to buy individual securities or mutual fund. Seventy percent of those who responded said that they would prefer individual stocks. On the basis of this survey, Kidder-Peabody decided to continue brokering only individual stocks. Yet during the '90s, Kidder-Peabody lost even more of the market to the mutual fund companies.
Which one of the following, if it were determined to be true, would best explain this discrepancy?
(A) Only 10 percent of those who were polled replied.
(B) Cabot Brokerage which conducted a similar survey with similar results continued to broker only individual stocks and also lost more of their market to mutual fund companies.
(C) The surveyed clients who preferred individual stocks also preferred big homes.
(D) Kidder-Peabody determined that it would be more profitable to broker individual stocks.
(E) Eighty percent of the clients who wanted individual stocks and only 40 percent of the
clients who wanted mutual funds replied to the survey. _________________
One question. According to your logic, it would still yield 88 individual securities to 75 mutual funds, meaning, the mutual funds are still less in number than that of individual securities.
Though the main para never talked about the percentage of penetration, I presume the safest option would be A coz if only 10% answered, then, any safe ratio can be assumed. Also, the above logic can be included. We can assume another situation where in the rest 90% who chose not to respond preferred Mutual Funds. This would mean that we could use the option A for explaining both an extreme situation like 10:90 (PS:MF) or a moderate 50:50 scenaio.
Anyways, I should accept that your approach to the question is classy.
What if 90% were those who preferred individual securities?
What if 90% were those who preferred mutual funds?
Every option has the same right for existence. Thus, is it difficult for us to say that (A) explain the paradox.
From (E), at least, we know that there was a rough balance in preferences. This gives us grounds to assume that it was unwise decision for Kidder-Peabody to concentrate only individual securities.
That may be the key why they were unsuccessful.
The discrepancy occurred because the company based its results on the survey taken. Choice E explains that the survey had a higher number of clients interested in individual stocks. Hence, the survey results were biased towards the clients interested in individual stocks. Choice A tells us nothing about clients interested in individual stocks or mutual funds. The question stem talks about owners of stocks in general. Choice A refers to the poll in general without clearly stating a difference between clients interested in individual funds or mutual funds.