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Which of the following best completes the passage below? The

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Which of the following best completes the passage below? The [#permalink] New post 27 Oct 2009, 05:23
00:00
A
B
C
D
E

Difficulty:

  15% (low)

Question Stats:

84% (01:54) correct 15% (00:51) wrong based on 133 sessions
Official Guide for GMAT Verbal Review, 2nd Edition

Practice Question
Question No.: 38
Page: 130
Difficulty:


Which of the following best completes the passage below?
The more worried investors are about losing their money, the more they will demand a high potential return on their investment; great risks must be offset by the chance of great rewards. This principle is the fundamental one in determining interest rates, and it is illustrated by the fact that______
(A) successful investors are distinguished by an ability to make very risky investments without worrying about their money
(B) lenders receive higher interest rates on unsecured loans than on loans backed by collateral
(C) in times of high inflation, the interest paid to depositors by banks can actually be below the rate of inflation
(D) at any one time, a commercial bank will have a single rate of interest that it will expect all of its individual borrowers to pay
(E) the potential return on investment in a new company is typically lower than the potential return on investment in a well-established company
[Reveal] Spoiler: OA

Last edited by Narenn on 17 Oct 2013, 02:11, edited 4 times in total.
Added OA
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Re: Investors [#permalink] New post 27 Oct 2009, 06:11
joyseychow wrote:
Which of the following best completes the passage below?
The more worried investors are about losing their money, the more they will demand a high potential return on their investment; great risks must be offset by the chance of great rewards. This principle is the fundamental one in determining interest rates, and it is illustrated by the fact that______
(A) successful investors are distinguished by an ability to make very risky investments without worrying about their money
(B) lenders receive higher interest rates on unsecured loans than on loans backed by collateral
(C) in times of high inflation, the interest paid to depositors by banks can actually be below the rate of inflation
(D) at any one time, a commercial bank will have a single rate of interest that it will expect all of its individual borrowers to pay
(E) the potential return on investment in a new company is typically lower than the potential return on investment in a well-established company



B best suits here. The higher potential of loosing money (unsecured loan) - the higher return (interest rate). B clearly serves as a fact to support argument.
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Re: Investors [#permalink] New post 27 Oct 2009, 06:36
(B) because

lenders receive higher interest rates on unsecured loans(GREATER RISK) than on loans backed by collateral(LESS RISKY)

joyseychow wrote:
Which of the following best completes the passage below?
The more worried investors are about losing their money, the more they will demand a high potential return on their investment; great risks must be offset by the chance of great rewards. This principle is the fundamental one in determining interest rates, and it is illustrated by the fact that______
(A) successful investors are distinguished by an ability to make very risky investments without worrying about their money
(B) lenders receive higher interest rates on unsecured loans than on loans backed by collateral
(C) in times of high inflation, the interest paid to depositors by banks can actually be below the rate of inflation
(D) at any one time, a commercial bank will have a single rate of interest that it will expect all of its individual borrowers to pay
(E) the potential return on investment in a new company is typically lower than the potential return on investment in a well-established company

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Re: Investors [#permalink] New post 27 Oct 2009, 10:20
B-greater risk, higher return. Pretty straight forward question
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Re: Investors [#permalink] New post 27 Oct 2009, 10:22
clear B since it exemplifies the stimulus.
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Re: Investors [#permalink] New post 27 Oct 2009, 10:29
+1 for B...
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Re: Investors [#permalink] New post 27 Oct 2009, 18:44
yep B from me too..
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Re: Which of the following best completes the passage below? The [#permalink] New post 23 Mar 2012, 09:15
I have chosen B for this question:

This question is looking for an example to match the relationship between high risk and high reward.

A. The relationship between high risk and high reward is not mentioned here. Although "very risky investments" is mentioned, there really is no mention of high rewards. You might argue that successful investors obtain "high rewards," but this is not necessarily true because successful investors could obtain many small rewards and still be successful.

B. This answer choice clearly shows an example of the relationship between high risk and high rewards. If you are an individual buying a bond in a company, it would be less risky for the bond to be backed by collateral than without collateral. Therefore, the higher risk bond would yield higher interests rates and the lower risk bonds (backed by collateral) would yield lower interest rates.

C. First of all, we are introducing a "time of inflation," which is a bit suspicious to me. Although these questions can bring in "outside" information, by saying "in times of inflation," we are not sure whether this is a time of high or low risk. Also, the remaining part of this answer choice does not express the relationship of high risk and high reward.

D. This statement actually weakens the argument because it contradicts the main relationship. By saying that some banks have a single interest rate for all individuals, you are ignoring the fact that individuals have different risk levels.

E. This also contradicts the main argument. It states that new companies (typically higher risk) have a lower potential return on investment than companies are lower risk.
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Re: Which of the following best completes the passage below? The [#permalink] New post 16 May 2013, 04:16
How would you classify this question? Really tough one...
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Re: Which of the following best completes the passage below? The [#permalink] New post 17 May 2013, 09:36
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fozzzy wrote:
How would you classify this question? Really tough one...


The more worried investors are about losing their money, the more they will demand a high potential return on their investment; great risks must be offset by the chance of great rewards.
From this part one thing has to be taken: high risk = high return

This principle is the fundamental one in determining interest rates, and it is illustrated by the fact that______

We have to complete the passage with a sentence that supports the highlighted principle above.

(A) successful investors are distinguished by an ability to make very risky investments without worrying about their money
Does this reflect the principle? No, move on
(B) lenders receive higher interest rates on unsecured loans than on loans backed by collateral
CORRECT: "higher interest rates on unsecured loans than on loans backed by collateral" is a clear example of more risk => more return
(C) in times of high inflation, the interest paid to depositors by banks can actually be below the rate of inflation
Same as A, does this reflect the principle? No, move on
(D) at any one time, a commercial bank will have a single rate of interest that it will expect all of its individual borrowers to pay
This goes against the principle, if a bank has a single rate then all loans (risky and not) will pay the same.
(E) the potential return on investment in a new company is typically lower than the potential return on investment in a well-established company
This goes asainst the principle as well. If a more risky company (the new one) pays lower returns than a more secure one, the principle more risk=> more return is violated
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Re: Which of the following best completes the passage below? The [#permalink] New post 17 May 2013, 20:59
Great Explanation! Thanks a lot +1 kudos
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Re: Which of the following best completes the passage below? The   [#permalink] 17 May 2013, 20:59
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