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Corporate officers and directors commonly buy and sell, for their own

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Corporate officers and directors commonly buy and sell, for their own [#permalink]

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Corporate officers and directors commonly buy and sell, for their own portfolios, stock in their own corporations. Generally, when the ratio of such inside sales to inside purchases falls below 2 to 1 for a given stock, a rise in stock prices is imminent. In recent days, while the price of MEGA Corporation stock has been falling, the corporation’s officers and directors have bought up to nine times as much of it as they have sold.

The facts above best support which of the following predictions?

(A) The imbalance between inside purchases and inside sales of MEGA stock will grow even further.
(B) Inside purchases of MEGA stock are about to cease abruptly.
(C) The price of MEGA stock will soon begin to go up.
(D) The price of MEGA stock will continue to drop, but less rapidly.
(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors
[Reveal] Spoiler: OA

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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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let us break the argument down -

inside sales / inside purchases < 2 ---> Rise in stock prices.

(this seems quite likely because for the ratio to drop below 2, the denominator "inside purchases" has to increase relative to the numerator. this might send a signal to investors that the stock is healthy. Hence, the rise in stock prices)

the argument tells us another fact -

inside sales / inside purchases = 1/9 (<2).

What inferences can we draw from this? Any answer option that suggests an increase in price would be the correct answer.

A -
Nowhere does the question mention or indicate that the ratio will further reduce. In fact, if the ratio reduces, the stock price will increase.
this might lead to more sales and fewer purchases, causing the ratio to increase.

B -
there is no indication of this.

C -
seems to align with our reasoning

D -
opposite answer. since, the ratio is so low, we expect an imminent rise in prices, not a drop.
Also, we do not have any idea about the rate of price increase or drop.

E -
there is no indication that this will be true. We have idea about the volume of trading that is done by people inside the company.
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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 26 May 2017, 14:13
I contemplated between C and D, but since we have "a rise in stock prices is imminent" - then it is definitely C.

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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 24 Aug 2017, 04:48
CrackVerbalGMAT wrote:
let us break the argument down -

inside sales / inside purchases < 2 ---> Rise in stock prices.

(this seems quite likely because for the ratio to drop below 2, the denominator "inside purchases" has to increase relative to the numerator. this might send a signal to investors that the stock is healthy. Hence, the rise in stock prices)

the argument tells us another fact -

inside sales / inside purchases = 1/9 (<2).

What inferences can we draw from this? Any answer option that suggests an increase in price would be the correct answer.

A -
Nowhere does the question mention or indicate that the ratio will further reduce. In fact, if the ratio reduces, the stock price will increase.
this might lead to more sales and fewer purchases, causing the ratio to increase.

B -
there is no indication of this.

C -
seems to align with our reasoning

D -
opposite answer. since, the ratio is so low, we expect an imminent rise in prices, not a drop.
Also, we do not have any idea about the rate of price increase or drop.

E -
there is no indication that this will be true. We have idea about the volume of trading that is done by people inside the company.



Though I chose C my question is :

The passage mentions that stock prices would increase when inside sales / inside purchases falls from 2 to 1.
In this case the value is 1/9 which is less than 1. The argument does not say anything about this scenario!

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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 12 Nov 2017, 18:58
Corporate officers and directors commonly buy and sell, for their own portfolios, stock in their own corporations. Generally, when the ratio of such inside sales to inside purchases falls below 2 to 1 for a given stock, a rise in stock prices is imminent. In recent days, while the price of MEGA Corporation stock has been falling, the corporation’s officers and directors have bought up to nine times as much of it as they have sold.

Type- inference
Boil it down - inside sales/ buy < 2 --- a rise in stock prices is imminent
- MEGA Corp has been falling, Inside sales/buy =1/9 , which is lesser than 2 -- > stock price is likely to rise



(A) The imbalance between inside purchases and inside sales of MEGA stock will grow even further. - Incorrect

(B) Inside purchases of MEGA stock are about to cease abruptly.- Incorrect - This may or may not be true

(C) The price of MEGA stock will soon begin to go up. - Correct

(D) The price of MEGA stock will continue to drop, but less rapidly. - Incorrect -- It should rise as per the ratio

(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors - Out of scope

Answer C
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Re: Corporate officers and directors commonly buy and sell, for their own   [#permalink] 12 Nov 2017, 18:58
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