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# A new company can offer stocks in an initial public offering (IPO) bef

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A new company can offer stocks in an initial public offering (IPO) bef  [#permalink]

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07 May 2017, 11:58
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Difficulty:

35% (medium)

Question Stats:

68% (01:44) correct 32% (01:56) wrong based on 295 sessions

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A new company can offer stocks in an initial public offering (IPO) before the company has proven itself capable of generating long-term profits for its stockholders. Historically, if a compasny has seemed likely to generate profits, the stock price in the IPO has risen; if the company seemed less likely to generate profits, the stock price in the IPO has fallen. Today business analysts announced that the Tenon Corporation has turned a profit in the financial quarter just completed. Therefore, stock prices for the Tenon Corporation’s IPO, which is planned for next week, will rise.

The author’s conclusion about Tenon Corporation is based on faulty reasoning because it

A. depends on the assumption that what has been true in the past will hold true in the future.
B. relies on a line of reasoning that is circular.
C. confuses cause with effect.
D. overlooks cases in which the counter-example is true.
E. rests on a faulty comparison.

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Re: A new company can offer stocks in an initial public offering (IPO) bef  [#permalink]

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05 Mar 2019, 02:13
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A new company can offer stocks in an initial public offering (IPO) before the company has proven itself capable of generating long-term profits for its stockholders. Historically, if a compasny has seemed likely to generate profits, the stock price in the IPO has risen; if the company seemed less likely to generate profits, the stock price in the IPO has fallen. Today business analysts announced that the Tenon Corporation has turned a profit in the financial quarter just completed. Therefore, stock prices for the Tenon Corporation’s IPO, which is planned for next week, will rise.

The author’s conclusion about Tenon Corporation is based on faulty reasoning because it

A. depends on the assumption that what has been true in the past will hold true in the future.
B. relies on a line of reasoning that is circular.
C. confuses cause with effect.
D. overlooks cases in which the counter-example is true.
E. rests on a faulty comparison.

PRINCETON REVIEW OFFICIAL EXPLANATION:

A

This is a reasoning question, so pay attention to how the author constructs his argument. He takes a historical trend and uses it to predict the outcome of a specific event. As you read through the answer choices, simply ask yourself, “Did he do that?”

(A) Yes. The author based his conclusion about Tenon on the assumption that what has been true in the past (in an IPO, a company that seemed likely to generate profits saw an increase in their stock price) will be true for Tenon.

(B) No. There is no circular reasoning here.

(C) No. There is no confusion of cause and effect—potential profits cause an increase in stock price.

(D) No. There are no counterexamples given, so this answer choice is out of scope.

(E) No. There is no comparison made in the argument, so this cannot be the credited response.
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Re: A new company can offer stocks in an initial public offering (IPO) bef  [#permalink]

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07 May 2017, 13:18
The conclusion that the stock price during the IPO launch will go up, because the profits of this quarter have gone up is faulty, because it isint always true(just because of something being true in the past)

Also since, the other options seem irrelevant, Option A should be the correct choice.

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Re: A new company can offer stocks in an initial public offering (IPO) bef  [#permalink]

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08 May 2017, 07:17
Argument is saying: A company usually offers IPO before proving itself capable to generate long term profits.

Then it said, in the past when profit was seen, the IPO price was higher and when the profit was not seen, the IPO price was lower.

Then the author concluded that price of a new company will be higher because profit for this is seen.

Assumption: What happened in the past will happen in the future also. Nothing has changed.

A. depends on the assumption that what has been true in the past will hold true in the future. : Same, as per our assumption, Hence, correct
B. relies on a line of reasoning that is circular. Circular? what is that? Incorrect
C. confuses cause with effect. We don't know about this. May be cause and effect relationship shown is true.
D. overlooks cases in which the counter-example is true. What is the counter example here? OFS
E. rests on a faulty comparison.: Are we sure it is faulty? No.
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Re: A new company can offer stocks in an initial public offering (IPO) bef   [#permalink] 08 May 2017, 07:17
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