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Senior Manager
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Mr. Smith and Mr. Jones both do business with a certain [#permalink]
 01 Apr 2004, 07:03
Question Stats:
100% (02:29) correct
0% (00:00) wrong based on 0 sessions
Mr. Smith and Mr. Jones both do business with a certain brokerage
firm, which has just one fee policy for all transactions, regardless
of the type. Last year Mr. Smith's only business with the firm was to
purchase, over a six month period, $20,000 worth of a certain stock.
Last year Mr.Jones' only business was to purchase, over the same
period , $200,000 worth of the same stock. This stock fluctuated in
value by no more than 5% over the course of last year. Mr.Smith and
Mr. Jones both paid the same total amount of fees to the broker last
year.
The statements above best support which of the following conclusions?
a. The broker's fee is calculated as a percentage of the value of the
transaction.
b. The broker's fee is calculate on a sliding scale.
c. The broker's fee is charged as a flat fee per transaction.
d. The broker's fee is based on the number of stocks bought or sold.
e. Mr. Smith's portfolio is worth one-tenth as much as Mr. Jone's
Portfolio.
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Director
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This is a tough one!
I guess the answer is E
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Director
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Gotta be D.
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CEO
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stoolfi wrote: Gotta be D.
welcome back 
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Director
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Thanks, Praet. I explained my return over on the CR #35 thread.
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Manager
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It might sound weird to all, but I am going with C.
_________________
A 750 aspirant.
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Director
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Not weird.
C is a tenable answer. The problem is that the stock was purchased "over a six month period". We don't know that the same number of transactions were placed in each account.
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Manager
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Opps !! I realise my mistake.
But how can we be sure that both of them bought or sold the same number of shares.
_________________
A 750 aspirant.
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GMAT Club Legend
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aspire wrote: Opps !! I realise my mistake.
But how can we be sure that both of them bought or sold the same number of shares.
They actually bought a different # of shares since the value of the stock did not vary by more than 5% in that year. The stock was stable. Therefore, Smith's transaction of 20k vs Jones's transaction of 200k means that Jones definitely purchased more in # of stocks. Yet, if both paid the same amount in transaction fees, the one fee policy must have been based on the # of stocks purchased as D indicates
_________________
Best Regards,
Paul
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Manager
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Initially i went for E...but then it may be wrong because we dont know if it is exactly one-tenth...So D may be the answer...
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Senior Manager
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I'll have to say C.
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Director
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Paul wrote: They actually bought a different # of shares since the value of the stock did not vary by more than 5% in that year. The stock was stable. Therefore, Smith's transaction of 20k vs Jones's transaction of 200k means that Jones definitely purchased more in # of stocks. Yet, if both paid the same amount in transaction fees, the one fee policy must have been based on the # of stocks purchased as D indicates
Given:
Poor Smith purchased stock X for $20,000.
Rich Jones purchased stock X for $200,000.
Assume that Price of X is $100.
Smith bought 200 stocks, whereas Jones bought 2000 stocks.
Assume that, as it is said in choice D, $1 commission for
each stock bought, then Smith paid $200 dollars and Jones
paid $2000 dollars.
But the stem says both paid the same dollar amount as fees.
Thus, D can be the true.
On the other hand, choice E says that Smith account is 1/10 of
Jones account. The price did not fluctuate more than 5%.
So, this choice is possible.
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GMAT Club Legend
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kpadma wrote: Paul wrote: They actually bought a different # of shares since the value of the stock did not vary by more than 5% in that year. The stock was stable. Therefore, Smith's transaction of 20k vs Jones's transaction of 200k means that Jones definitely purchased more in # of stocks. Yet, if both paid the same amount in transaction fees, the one fee policy must have been based on the # of stocks purchased as D indicates Given: Poor Smith purchased stock X for $20,000. Rich Jones purchased stock X for $200,000. Assume that Price of X is $100. Smith bought 200 stocks, whereas Jones bought 2000 stocks. Assume that, as it is said in choice D, $1 commission for each stock bought, then Smith paid $200 dollars and Jones paid $2000 dollars. But the stem says both paid the same dollar amount as fees. Thus, D can be the true. On the other hand, choice E says that Smith account is 1/10 of Jones account. The price did not fluctuate more than 5%. So, this choice is possible. What if Mr. Smith already had an account of 1 million $ and Mrs. Jones made her very first 200k purchase? E is definitely wrong and only D can really be infered from the info given
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Best Regards,
Paul
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Director
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Paul wrote: What if Mr. Smith already had an account of 1 million $ and Mrs. Jones made her very first 200k purchase? E is definitely wrong and only D can really be infered from the info given
That is a possiblity, but aren't we assuming out side the scope of the
argument that both started with an excisting account with different
amounts in the accounts.
On the other hand,
the stem says both have bought the same company stock for different
amounts and still payed the same fees. If so, the fees can't be
based on number of stocks.
I don't know if I'm missing something or misread the stem.
Hope I'm not making any stupid mistakes.
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GMAT Club Legend
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Quote: both have bought the same company stock for different
amounts and still payed the same fees
You said it. both paid the same fees for different # of stocks bought. Can we therefore not conclude that the unique fee policy is thus based on the # of stocks? In other words, no matter how many stocks you purchased, you pay the same fee. Also to add that A does not require ANY assumption whereas E requires an assumption that both start with a 0$ portfolio
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Best Regards,
Paul
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SVP
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I will go with C.
D cannot be correct because the fluctuation is only 5% so person who bought $200000 must have bought lot of stocks compared to the one who bought $20,000 worth of stocks.
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Senior Manager
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OA is C.
rgds,
batli
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