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

It is currently 22 Jul 2014, 06:14

Close

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.

Customized
for You

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

Track
Your Progress

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

Practice
Pays

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

Technically a given category of insurance policy is

  Question banks Downloads My Bookmarks Reviews Important topics  
Author Message
TAGS:
Manager
Manager
avatar
Joined: 13 Aug 2009
Posts: 153
WE 1: 4 years in IT
Followers: 1

Kudos [?]: 24 [0], given: 7

Technically a given category of insurance policy is [#permalink] New post 09 Apr 2010, 23:02
00:00
A
B
C
D
E

Difficulty:

  5% (low)

Question Stats:

67% (02:37) correct 33% (02:06) wrong based on 9 sessions
Technically a given category of insurance policy is underpriced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an underpriced policy does not represent a net loss in every case.

The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately underpriced in order to attract customers to the insurance company offering such policies.
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case.
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set.
(D) The income earned by investing premium income is the most important determinant of an insurance company's profits.
(E) The claims against at least some underpriced policies do not require paying out all of the premium income from those policies as soon as it is earned.
[Reveal] Spoiler: OA
Intern
Intern
User avatar
Joined: 18 Feb 2010
Posts: 20
Followers: 0

Kudos [?]: 8 [0], given: 2

Re: Assumption cr [#permalink] New post 10 Apr 2010, 11:55
E
Technically a given category of insurance policy is underpriced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an underpriced policy does not represent a net loss in every case.
The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately underpriced in order to attract customers to the insurance company offering such policies. (Out of scope)
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case. (No. This is simply repeating the conclusion)
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. (No. may be the associated expenses may cause it to be underpriced every time.)
(D) The income earned by investing premium income is the most important determinant of an insurance company's profits. (No. It may be but cant see how it effects the conclusion)
(E) The claims against at least some underpriced policies do not require paying out all of the premium income from those policies as soon as it is earned. (YES. and this premium income can generate return which may in total (premium + return) exceed the claims + expenses. Thus in those cases the policy may not be actually underpriced.)
_________________

If you like my post, shower kudos :)

Believe that something extraordinary is possible

Director
Director
User avatar
Joined: 24 Aug 2007
Posts: 956
WE 1: 3.5 yrs IT
WE 2: 2.5 yrs Retail chain
Followers: 51

Kudos [?]: 667 [0], given: 40

GMAT Tests User
Re: Assumption cr [#permalink] New post 28 Apr 2010, 05:12
IMO E.

This is a case of Defender Assumption. To defend the conclusion that underpriced policies are not a net loss, we have to show that premiums+return > claims+expenses. For this we need premiums to invest till the time returns comes. This is our assumtion criteria. Just check the options.

raghavs wrote:
Technically a given category of insurance policy is underpriced if, over time, claims against it plus expenses associated with it exceed total income from premiums. But premium income can be invested and will then yield returns of its own. Therefore, an underpriced policy does not represent a net loss in every case.
The argument above is based on which of the following assumptions?

(A) No insurance policies are deliberately underpriced in order to attract customers to the insurance company offering such policies. [This is supporting one but it does not bring the relationship we are looking for. Incorrect]
(B) A policy that represents a net loss to the insurance company is not an underpriced policy in every case. [This is just a repition of the main conclusion. Incorrect]
(C) There are policies for which the level of claims per year can be predicted with great accuracy before premiums are set. [We need to find info on underpriced policy. This is super set of policy which may or may not bring relevent relationship. Incorrect]
(D) The income earned by investing premium income is the most important determinant of an insurance company's profits. [This is Shell Game fallacy. Incorrect Remember, answer choices, which have MOST/PRIMARY REASON words are usually suspect of misleading incorrect answer choices.]
(E) The claims against at least some underpriced policies do not require paying out all of the premium income from those policies as soon as it is earned. [This is exactly what we are looking for. Correct]

[Reveal] Spoiler:
OA--E

_________________

Want to improve your CR: cr-methods-an-approach-to-find-the-best-answers-93146.html
Tricky Quant problems: 50-tricky-questions-92834.html
Important Grammer Fundamentals: key-fundamentals-of-grammer-our-crucial-learnings-on-sc-93659.html

Manager
Manager
avatar
Joined: 24 Mar 2010
Posts: 104
Followers: 1

Kudos [?]: 30 [0], given: 12

GMAT ToolKit User GMAT Tests User
Re: Assumption cr [#permalink] New post 29 Apr 2010, 05:57
yup....even i think its E
_________________

Please do consider giving kudos if you like my posts

Re: Assumption cr   [#permalink] 29 Apr 2010, 05:57
    Similar topics Author Replies Last post
Similar
Topics:
Technically a given category of insurance policy is syr 6 06 Sep 2011, 21:44
Technically a given category of insurance policy is milind1979 7 29 Mar 2009, 17:26
Technically a given category of insurance policy is ayushi 11 26 Oct 2006, 11:52
Technically a given category of insurance policy is rahulraao 15 05 Oct 2005, 16:51
Technically a given category of insurance policy is Vithal 6 28 May 2005, 16:32
Display posts from previous: Sort by

Technically a given category of insurance policy is

  Question banks Downloads My Bookmarks Reviews Important topics  


cron

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®.