GMAT Question of the Day - Daily to your Mailbox; hard ones only

 It is currently 17 Oct 2018, 09:11

# Q&A in Progress!

### 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

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

# Consumers in California seeking personal loans have fewer

Author Message
Director
Joined: 17 Oct 2005
Posts: 881
Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

30 Nov 2005, 16:44
1
00:00

Difficulty:

(N/A)

Question Stats:

60% (01:09) correct 40% (01:20) wrong based on 52 sessions

### HideShow timer Statistics

Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer.

(B) Personal loans are riskier than other types of loans, such as home mortgage loans, that banks make.

(C) Since bank deposits in California are covered by the same type of insurance that guarantees bank deposits in other parts of the United States, they are no less secure than deposits elsewhere.

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

--== Message from the GMAT Club Team ==--

THERE IS LIKELY A BETTER DISCUSSION OF THIS EXACT QUESTION.
This discussion does not meet community quality standards. It has been retired.

If you would like to discuss this question please re-post it in the respective forum. Thank you!

To review the GMAT Club's Forums Posting Guidelines, please follow these links: Quantitative | Verbal Please note - we may remove posts that do not follow our posting guidelines. Thank you.
VP
Joined: 22 Aug 2005
Posts: 1082
Location: CA

### Show Tags

30 Nov 2005, 17:55
A.

it is "higher wages", not "lack of competition" for higher interest rates for personal loans.

C does not explain why ONLY CA banks are charging more interest rates for personal loans.
_________________

Whether you think you can or think you can't. You're right! - Henry Ford (1863 - 1947)

Senior Manager
Joined: 29 Aug 2005
Posts: 467

### Show Tags

01 Dec 2005, 00:36
A sounds good.
Higher wages... Higher interest rates.
Director
Joined: 17 Oct 2005
Posts: 881

### Show Tags

01 Dec 2005, 01:05
the OA is A. I chose D because if people do not default, then couldnt the banks hike up the interest rate if they wanted ?
SVP
Joined: 28 May 2005
Posts: 1593
Location: Dhaka

### Show Tags

01 Dec 2005, 02:09
yup I got A not entirely convinced but the best in the bunch.

B. doesn't give us any clue, buecause we are told about the interest in personal loan for rest of the country. we don't know in rest of the country whether the interest rate for mortgage is higher or lower.

C. doesn't give a reason why interets rete on personal loan will be higer in CA.

D. this information simply says that interest rate on personal loan will be lower in CA due to lower default risk. now because we are tryinig to refute a causal argument, in order to weaken the argument, we need to find another reason that contributes to the conclusion, not a premise that changes the conclusion.

E. same as D.

so only A stands.
_________________

hey ya......

Director
Joined: 17 Oct 2005
Posts: 881

### Show Tags

01 Dec 2005, 03:11
this information simply says that interest rate on personal loan will be lower in CA due to lower default risk.

thanks nakib i misunderstood D.

If chances are that a person will not pay me back, then i will charge a high interest rate. If that person will pay me back, then i will charge a low interest rate.

Conclusion: banks in cali pay higher interest rates cuz of lack of competiton

A is best
Intern
Joined: 16 Nov 2011
Posts: 15
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

01 Apr 2012, 14:43
I agree A is the only relevant answer choice but here's my question:

A talks about depositors. Conclusion of the argument talks about personal loans. How does charging people more for depositing translate to higher interest rates for personal loans?
Intern
Joined: 01 Apr 2012
Posts: 7
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

01 Apr 2012, 22:03
pls explain choice D, i am inclined for D
Senior Manager
Joined: 13 Mar 2012
Posts: 254
Concentration: Operations, Strategy
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

01 Apr 2012, 22:11
1
cangetgmat wrote:
pls explain choice D, i am inclined for D

Consumers in California seeking personal loans have fewer banks to turn to than do consumers elsewhere in the United States. This shortage of competition among banks explains why interest rates on personal loans in California are higher than in any other region of the United States.

Which of the following, if true, most substantially weakens the conclusion above?

(A) Because of the comparatively high wages they must pay to attract qualified workers, California banks charge depositors more than banks elsewhere do for many of me services they offer.

(D) The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States.
--> here proportion of consumer is irrelevant to the conclusion you need something weakening the relation that due to less banks the interest is higher but A provides another reason why interest rates are higher.
_________________

Practice Practice and practice...!!

If there's a loophole in my analysis--> suggest measures to make it airtight.

Manager
Status: swimming against the current
Joined: 24 Jul 2009
Posts: 195
Location: Chennai, India
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

06 Apr 2012, 08:34
1
cangetgmat wrote:
pls explain choice D, i am inclined for D

Unfortunately D can be inferred in 2 ways, one is why you think this is the answer, and the other is "The proportion of consumers who default on their personal loans is lower in California than in any other region of the United States." Which means the risk is low in giving out a personal loan, so ideally the rates should be low. If a market is risky or if a loan is unsecured you will be charged high e.g. credit cards.
_________________

Gonna make it this time

Intern
Joined: 10 May 2012
Posts: 45
GMAT Date: 09-10-2012
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

06 Aug 2012, 14:30
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.
Senior Manager
Status: Final Countdown
Joined: 17 Mar 2010
Posts: 459
Location: India
GPA: 3.82
WE: Account Management (Retail Banking)
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

06 Aug 2012, 14:39
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Amrita,
your point is valid but let's look again at the ACs.
(E) is more like another premise of the argument but (A) weakens the conclusion by stating an idea that the banks do pay huge salary to hire and retain best officers so the interest rates on personal loans are high.

Hope this helps !!
_________________

" Make more efforts "
Press Kudos if you liked my post

Intern
Joined: 10 May 2012
Posts: 45
GMAT Date: 09-10-2012
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

06 Aug 2012, 15:01
thevenus wrote:
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Amrita,
your point is valid but let's look again at the ACs.
(E) is more like another premise of the argument but (A) weakens the conclusion by stating an idea that the banks do pay huge salary to hire and retain best officers so the interest rates on personal loans are high.

Hope this helps !!

I understand A also weakens it, but this would be my second choice. On the D day I'll end up choosing E.....looking for some concrete reason to discard this option.
Senior Manager
Joined: 07 Sep 2014
Posts: 383
Concentration: Finance, Marketing
Re: Consumers in California seeking personal loans have fewer  [#permalink]

### Show Tags

31 Mar 2017, 23:11
jaiswalamrita wrote:
Sorry folks, but I am not able to strike option E out.

(E) Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

Even this option brings in new reason of high interest rate on personal loan.
This is how I interpreted it:

There are fewer banks in Cal
Fewer banks so less competition
Less competition so these banks offer less interest rate on deposits
Less interest rate so they get less deposits (because depositors are less attracted)
Less deposits so bank has less fund to disburse as loan
Less fund to disburse hence bank increased the interest rate on loan

As per me this is what happens in practical also.

Please let me know whats wrong with this reasoning.

Your line of reasoning is correct but "Less interest rate so they get less deposits" this is, I believe, an assumption that you have to make. For example :- If you have option of only 5% interest at your FD and no other option, regardless of what other states bank pay, if that's the best option you can get, you have to opt for that only.

Also E actually strengthen by saying that - yes, there is less competition and that is why high interest rate. Interest rates paid by California banks to depositors are lower than those paid by banks in other parts of the United States because in California there is less competition to attract depositors.

We have to find the option that provide alternate reason of High interest rate, that A does.

--== Message from the GMAT Club Team ==--

THERE IS LIKELY A BETTER DISCUSSION OF THIS EXACT QUESTION.
This discussion does not meet community quality standards. It has been retired.

If you would like to discuss this question please re-post it in the respective forum. Thank you!

To review the GMAT Club's Forums Posting Guidelines, please follow these links: Quantitative | Verbal Please note - we may remove posts that do not follow our posting guidelines. Thank you.
Re: Consumers in California seeking personal loans have fewer &nbs [#permalink] 31 Mar 2017, 23:11
Display posts from previous: Sort by