Advertisement: Last year, Factorial Mutual Fund continued its strong

Question

Advertisement: Last year, Factorial Mutual Fund continued its strong record of investment performance. Investors who included Factorial Fund in their portfolios realized an average capital gain of 15% across all of their investment assets, nearly double the market return. Therefore, investors interested in high returns should consider adding Factorial Mutual Fund to their portfolios.

The claim in the advertisement above is based on which of the following assumptions?

A. Factorial Fund is one of the oldest and largest mutual funds in the investment industry.
 
B. A substantial part of the 15% portfolio appreciation was attributable to the returns of Factorial Fund and this level of fund’s performance is likely to persist in the future.
 
C. Last year, Factorial Fund outperformed all other funds with similar style and investment objectives.
 
D. The Fund is suitable to all investors.
 
E. The fees charged by Factorial Fund are among the lowest in the investment industry.

mikemcgarry · Accepted Answer

Dear Archit143 , It seems you understand that (B) is the strongest answer, but you want to know what is wrong with (D). First of all, I will say: you are missing the forest for the trees. You are getting so caught on picayune details that you are missing the big picture. This tells me you have too much experience with GMAT CR arguments and not enough experience with real-world arguments. It appears you have hit a point of diminishing returns with GMAT CR questions, at which the study of them can do as much harm as good. You really need to balance your perspective by getting an excellent grounding in real world economic arguments. Read the WSJ, the NYT, and the Economist magazine. Read about the real push-and-pull in the world. That will give you the broader perspective you are missing right now. In this problem --- the broader perspective is: this guy wants to sell me this mutual fund. His evidence --- " Investors who included Factorial Fund in their portfolios realized an average capital gain of 15% across all of their investment assets " ---- wait a moment! Huge logical leap! If those folks had several stocks & bonds & funds in their portfolio besides Factorial Fund, why on earth would we attribute the success of the portfolio overall to the presence of Factorial Fund. If I own, say, $200 in Factorial Fund and $5000 in Apple, and the Apple goes through the roof, yes, I make a big profit, but what does that profit have to do with the little bit of Factorial Fund I had? That is the huge gaping hole in this argument. That is precisely the hole that needs to be addressed. That's why (B) is the clear choice for the correct answer. As for (D), check your own assumptions and careful reading. The argument does not say: "investors interested in high returns should add Factorial Mutual Fund to their portfolios." (That would be way to strong for the CR section.) Rather, it says: "investors interested in high returns should consider adding Factorial Mutual Fund to their portfolios ." Presumably, a big part of what each investor should consider is whether Factorial Fund is suitable to her own portfolio. Therefore, automatic suitability is not an assumption. ----------- Suppose (D) is not correct: suppose Factorial Fund is suitable, say, for 98% of investors, but not that last 2%. How much do you know about real-world advertising? Well, any ad that appeals to 98% of the population is an unbelievably successful ad, successful beyond all reasonable expectations! If Factorial Fund is really as good as the Advertisement claims --- that is to say, if assumption (B) is really true --- then indeed every investor should consider it, simply because it's so good, and only those investors who find it is not suitable for their portfolios should choose not to include it --- in other words, finding out it's not suitable would be the one and only one reason not to include it. Those are all interpretations by which (D) can be false and the argument can still retain its full strength. (D) is in no way an assumption upon which the strength of the argument depends. Does all this make sense? Mike :-)

Bluelagoon · Answer

Advertisement: Last year, Factorial Mutual Fund continued its strong record of investment performance. Investors who included Factorial Fund in their portfolios realized an average capital gain of 15% across all of their investment assets, nearly double the market return. Therefore, investors interested in high returns should consider adding Factorial Mutual Fund to their portfolios.

The claim in the advertisement above is based on which of the following assumptions?

Factorial Fund is one of the oldest and largest mutual funds in the investment industry.

A substantial part of the 15% portfolio appreciation was attributable to the returns of Factorial Fund and this level of fund’s performance is likely to persist in the future.

Last year, Factorial Fund outperformed all other funds with similar style and investment objectives.

The Fund is suitable to all investors.

The fees charged by Factorial Fund are among the lowest in the investment industry.

The assumption is that the fund will continue to perform in the same was as in the past. B wins.

Archit143 · Answer

I agree with your point and the same thought i also have , but my question is whats wrong with the assumption that " it will poerform in same manner woth all investors" you negate it and conclusion will not stand
lets try
Conclusion : Investors should invest in fund if they want to book profit
Negate: It will not perform in same manner to all i.e. profit can be varying for investors
hence the conclusion falls

Correct me if i am wrong these are closely placed answers and to master gmat we need to master shell game of gmat 
these options can play crucial role in tight time constrain.
Hence i bit wary about it nad want to have clear understanding

tuanquang269 · Answer

Choice B correctly solve the problem. The rate of return will keep unchanging in the future.

Archit143 · Answer

What an explanation 
thanks Mike 
And you have correctly pointed out my weakness i too feel the same, trying to improve 
thanks again

arvind910619 · Answer

Imo B 
If the return on investment on Factorial Mutual Fund is likely to the same and will not decrease then only the advise of the advertisement will be correct in saying that Factorial Mutual Fund will increase your earning .

souvik101990 · Answer

Hope you guys got this one right! Feel free to post questions/thoughts. This question has also been included in the  Assumption Mondays Revision Thread . Check back there next Monday for more questions!

goaltop30mba · Answer

So if someone doesn’t really know anything about portfolios or mutual funds or a little bit about when is an ad considered a success, then he/she won’t be able to narrow it down to b right?

I don’t think the Gmat does that !

Posted from my mobile device

zoezhuyan · Answer

any experts can help why C is incorrect.
IMO, if Factorial Fund outperformed all other funds with similar style and investment objectives, why not consider adding Factorial Fund ?

on the other hand, if negate C, Factorial Fund did not as good as others, investors will unlikely consider Factorial Fund.

CrackverbalGMAT · Answer

Hi

We are not to consider the conclusion alone, ie; that investors should consider adding Factorial Fund to their portfolios, but the conclusion along with the premises on which it is based. In this case, the conclusion is based on the following premise:

Investors who included Factorial Fund in their portfolios realized an average capital gain of 15% across all of their investment assets, nearly double the market return.

Therefore, as per the passage, the fact that investors with Factorial Fund in their portfolio realized almost double the market return is what makes it desirable for investors wanting high returns to include Factorial Fund in their portfolios.

With this in mind, when we consider (C), just the fact that Factorial Fund outperformed other similar funds does not necessarily mean that Factorial Fund was responsible for the investors realizing high returns. What if Factorial Fund actually had poor absolute returns (since it outperformed only other funds "with similar style and investment objectives") and in fact formed a small proportion of the investors' portfolio? This would also imply that their high returns were driven by other assets in their portfolio and not Factorial Fund, making the conclusion questionable.

Hope this helps.

DmitryFarber · Answer

anks2190

We're not just looking for potential advantages of the fund. We're looking for things that NEED to be true for the argument to work. Even if some funds were equal to or somewhat better than Factorial, and even if Factorial were not appropriate for some investors, it could still be logical to conclude that those who want high returns should consider Factorial. So that cuts C and D.

However, if Factorial was not what drove the profits of the investors in the premise, or if the profitability will not continue, then there's no reason for those in search of profits to consider adding Factorial.

AnanyaSingh09 · Answer

Why not option c ???
pls explain

DmitryFarber · Answer

The two posts above yours both dismiss C, so take a look and let us know if you have follow-up questions.

Advertisement: Last year, Factorial Mutual Fund continued its strong

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Advertisement: Last year, Factorial Mutual Fund continued its strong

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