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

Question

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

umg4147 · Accepted Answer

Well for the inside selling question we cant pre think in a mathematical way.

Lets say the Price goes up when the ratio of Sales to Purchase is less than 2:1

S/P < 2/1 the price goes up

Now the situations says :- P=9S

Substituting in the main statement :- S/9S = 1/9 i.e.<2/1 hence the price is bound to go up.

I hope my prethinking is correct.

If it helps, dont be shy to show some love...

CrackverbalGMAT · Answer

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.

ywilfred · Answer

Premise:
sales: purchase below 2:1 --> rise in stock price imminent
Claim:
sales:purchase = 1:9 --> stock price falling

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. 
- Can't tell this from the premise given

(B) Inside purchases of MEGA stock are about to cease abruptly. 
- We also won't know if it will be abrut

(C) The price of MEGA stock will soon begin to go up. 
- We know if the ratio falls below 2:1, the price should rise. So this should be the answer.

(D) The price of MEGA stock will continue to drop, but less rapidly. 
- Again, we can't tell based on the premise given

(E) The majority of MEGA stock will soon be owned by MEGAâ€™s own officers and directors.
- We won't know if this will actually happen

C it is.

thevenus · Answer

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.

Inside trading (sell and purchase) will bring the ratio between 2 to 1 hence the stock rate to improve/grow;nine times purchase will enhance the price of stocks

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.
 No,it is mentioned that the sell -purchase will rise the stock prices-incorrect 
(B) Inside purchases of MEGA stock are about to cease abruptly.
 its is not mentioned anywhere-incorrect 
(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 
(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors.
 out of scope, no where mentioned that the officers/directors will own the majority of shares-incorrect

GyanOne · Answer

The stimulus says that when the ratio of inside sales to inside purchases falls below 2:1, a rise in stock prices is imminent, i.e. sure to happen in the near future.

A): We cannot conclude this as we are not given any relationship between how the inside sales and purchases of MEGA stock will move in the future
B): We cannot conclude this as no information is given to this effect
C): Correct. This follows from the stimulus through only slight inference. 
D): We know that the stock price has been dropping but do not know how it will continue to move in the future. 
E): We are given no information on this.

C it is.

kinjiGC · Answer

Please update the OA in the first post.

The OE is:

Since MEGA’s officers and directors have bought almost nine times as much of MEGA’s stock as they have sold, the ratio of inside sales to inside purchases is roughly 1 to 9, well below 2 to 1. Hence, by the generalization stated in the passage, as rise in MEGA’s stock price is imminent and choice C is the best answer.

Since the prediction in choice D runs counter to the stated generalization, choice D is not supported. The passage does not suggest there will be an increase in the imbalance between such purchases and sales. Thus, choice A is not supported. Similarly, the passage suggests neither that inside purchases are about to cease nor that the majority of MEGA stocks will soon be owned by MEGA officers and directors. Thus, neither choice B nor choice E is supported.

veergmat · Answer

Stock goes up when sales/purchase < 2.

Sales/Purchase = 1/9

Henceforth , Stocks will see increasing trend in future.

LakerFan24 · Answer

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.
- we don't know that there was an inbalance in the first place...and have no way to verify this.

(B) Inside purchases of MEGA stock are about to cease abruptly.
- "abruptly" = extreme language. we don't know this for sure.

(C) The price of MEGA stock will soon begin to go up.
- correct as is. if your ratio is sales/purchase and decreasing this # will increase the stock price -- the stock price is going to decrease. this is b/c the passage says the corp's officers are buying 9x the # they've sold. huuge imbalance. the # is going down.

(D) The price of MEGA stock will continue to drop, but less rapidly.
- OPPOSITE. see "C" for clarification

(E) The majority of MEGA stock will soon be owned by MEGA's own officers and directors.
- we don't know this. maybe there was an overwhelming majority going the other way and after this, it would be 50/50?

I treated this Q like an Inference. Just looked for the statement I thought must be true here.

Kudos please if you find this helpful

Probus · Answer

Hi  Bunuel ,

Would this question fall under "Inference" category.

Probus

kavach · Answer

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.

Inside trading (sell and purchase) will bring the ratio between 2 to 1 hence the stock rate to improve/grow;nine times purchase will enhance the price of stocks

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.
No,it is mentioned that the sell -purchase will rise the stock prices-incorrect
(B) Inside purchases of MEGA stock are about to cease abruptly.
its is not mentioned anywhere-incorrect
(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
(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors.
out of scope, no where mentioned that the officers/directors will own the majority of shares-incorrect 
_________________

arnavthakur56 · Answer

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
Kindly elaborate all the answer choices.Which one is right or wrong please give reason for the same

Adelajne · Answer

(A) The  imbalance  between inside purchases and inside sales of MEGA stock will grow even further.
They are in balance now, so we don't know if there will be some imbalance for sure.

(B) Inside purchases of MEGA stock are about to  cease abruptly . (extreme)

(C) The price of MEGA stock will soon begin to go up. ( CORRECT )
Since they are buying and selling by the same ratio, and generally when they sell, the price goes up, this is most probably to happen.

(D) The price of MEGA stock will continue to drop, but  less rapidly . (we don't know by what extend)

(E) The  majority  of MEGA stock will soon be owned by MEGA’s own officers and directors 
It depends on the volume of the stock, we don't know how many stocks are to determine that a majority of them will own it.

ravigupta2912 · Answer

Between the options, C is the winner but its a very poor candidate I feel. Here are my reasons.

Generally, when the ratio bla bla, rise in stock prices is imminent. (Generally does not mean surety).

But anyways, GMAT is about 4 incorrect choices and the rest 4 are very bad.

GKomoku · Answer

helped a lot, show you love  umg4147

sahuanamika · Answer

Inference:
1 < ratio of (inside sales of stocks)/(inside purchase of stocks) < 2 when this happens , rise in stock prices.
Now in MEGA :

Purchase = 9* sale of stocks , so the ration Sales/(9*Sales) = 1/9 which clearly falls between 2 to 1 , 
so definitely stocks price of MEGA will increase.

Now choices:
(A) The imbalance between inside purchases and inside sales of MEGA stock will grow even further.
-- we cannot infer this because we know only the ration but the exact values of stocks sold and purchased is unknown.

(B) Inside purchases of MEGA stock are about to cease abruptly.
-- we cannot infer this as this is out of context , ceasing is not discussed here.

(C) The price of MEGA stock will soon begin to go up.
-- this is correct as we inferred.

(D) The price of MEGA stock will continue to drop, but less rapidly.
-- this is exactly opposite of what we inferred so not correct.

(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors
-- this we cannot infer as we don't know the exact stock values and exactly who brought it.

Ans C

AnishPassi · Answer

The Story

Corporate officers and directors commonly buy and sell, for their own portfolios, stock in their own corporations.
 
It is common for corporate workers and directors to buy and sell stock in their own companies.

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.
  
  Inside sales and inside purchases: sale and purchase of stocks by officers and directors of the company (let’s just call them company employees) 
  ‘Ratio of inside sales to inside purchases’: Ratio of number of stocks sold by company employees to number of stocks purchased by company employees 
  When this ratio falls below 2 to 1: So, when the number of shares sold becomes less than twice the number of shares bought - e.g. 100 shares sold and 60 shares bought.

This statement is talking about a general trend. When the ratio of inside sales to inside purchases goes below a certain level, the stock’s price increases.

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.
 
This statement talks about a particular company.

MEGA’s stock price has been falling.

The ratio of inside sales to inside purchases: 1 to 9 (1:9).

A few things to note:
 1. The employees have bought up to 9 times as many shares as they have sold.
 a. Shares bought > shares sold
b. Shares bought = 9 x shares sold
c. So, if the number of shares sold is 100, the number shares bought would be up to 100 x 9 (= 900). 
2. The ‘below 2 to 1’ ratio mentioned above is of sales to purchases (bought 100, sold 60)
3. In terms of a ratio of  sales to purchases  this 9x figure talked about in this statement would be 1:9. The ratio would not be 9:1. 
4. 1:9 is significantly less than 2:1
 a. 1:9 :: 1/9 = 0.11
b. 2:1 :: 2/1 = 2
c. 2 is almost 20 times of 0.11
d. So, 2:1 almost 20x of 1:10
e. 1:9 is significantly less than 2:1

Question Stem

The facts above best support which of the following predictions?
 
An ideal answer choice would be an inference based on the passage.

One prediction that comes to mind is: Since the ratio of inside sales to inside purchases in the company is less than 2:1 (1:9 is less than 2:1), the company’s stock price will increase.

Answer choice analysis

(A) The imbalance between inside purchases and inside sales of MEGA stock will grow even further. 
  Incorrect.   
i.e. the ratio (currently 1:9) will continue to dip. I don’t get any such indication from the passage. In fact, since the current ratio could lead to an increase in stock price, perhaps inside sales increase and inside purchases reduce. So, I’d imagine that the imbalance will actually reduce. Though I couldn’t infer that either.

(B) Inside purchases of MEGA stock are about to cease abruptly. 
  Incorrect.   
Since the current inside sales to inside purchases ratio would lead to an increase in stock price, maybe inside purchases would reduce. However, there is nothing in the passage to support that inside purchases will cease abruptly, and that too in the near future.

(C) The price of MEGA stock will soon begin to go up. 
  Correct.   
We’re given that:

1. When the ratio of inside sales to inside purchases goes below 2 to 1, a rise in stock prices  is imminent 
2. We’re given that the ratio of inside sales to inside purchases at MEGA is 1 to 9.

1 to 9 is significantly lower than 2 to 1.

So, a rise in MEGA’s stock price is imminent (about to happen).

(D) The price of MEGA stock will continue to drop, but less rapidly. 
  Incorrect.   
We can, in fact, predict that this will not happen. As discussed in the previous answer choice, the price of MEGA stock will soon rise. So, the prediction that the price of the stock will  continue to drop  is contrary and not supported by the passage.

(E) The majority of MEGA stock will soon be owned by MEGA’s own officers and directors 
  Incorrect.   
All we have is the current ratio of sales to purchases by MEGA employees.

1. We don’t know the number of shares bought and sold by them
2. Even if we were given those numbers - say 100 sold and 900 bought. We don’t know how many shares the company has in total. i.e., these 1000 shares make up what proportion of the company’s total shares.

ArnauG · Answer

The passage states that when the ratio of inside sales to inside purchases falls below 2 to 1 for a given stock, a rise in stock prices is imminent. It also mentions that, despite the falling price of MEGA Corporation stock, the officers and directors have bought up to nine times as much as they have sold. We need to identify the prediction that is best supported by these facts.

Option (A) predicts that the imbalance between inside purchases and inside sales of MEGA stock will grow even further. There is no direct evidence to support or refute this prediction based on the information provided.

Option (B) predicts that inside purchases of MEGA stock are about to cease abruptly. This prediction is not supported by the information provided, as it states that the officers and directors have bought a significant amount of MEGA stock despite the falling prices.

Option (C), the correct answer, predicts that the price of MEGA stock will soon begin to go up. This prediction aligns with the information given, which suggests that a rise in stock prices is imminent when the ratio of inside sales to inside purchases falls below 2 to 1.

Option (D) predicts that the price of MEGA stock will continue to drop, but less rapidly. This prediction contradicts the information provided, which suggests that a rise in stock prices is imminent when the inside sales-to-purchases ratio is low.

Option (E) predicts that the majority of MEGA stock will soon be owned by MEGA's officers and directors. This prediction goes beyond the information provided and cannot be directly inferred from the facts given.

In conclusion, option (C) is the prediction best supported by the facts presented, as it aligns with the information that a rise in the price of MEGA stock is expected when the inside sales-to-purchases ratio is low.

KarishmaB · Answer

Premises:  
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.

Conclusion:   ?

So we  are given that if the inside purchases are more than half of inside sales, then the stock price rises for sure. Currently the inside purchases are 9 times the inside sales. 
So what we can conclude?  That a rise in stock price will take place soon.

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

No data to conclude this. There is no reason for the imbalance to increase further. With the current ratio, if the stock price starts increasing, it is likely that inside buying will reduce and inside selling will increase. Hence, the imbalance will likely reduce, not increase.

(B) Inside purchases of MEGA stock are about to cease abruptly.

No such information about abrupt ceasing of purchases.

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

Yes, we can conclude this as per our discussion above.

(D) The price of MEGA stock will continue to drop, but less rapidly.

No such information that the price will continue to drop. In fact we are expecting the price to start rising.

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

Too far fetched. MEGA’s own officers and directors may still own a very small fraction of the overall stock. Only the purchase:sale ratio is very high. In actual terms, the number of stocks being bought may still be very few.

Answer (C)

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