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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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New post Updated on: 12 Jun 2018, 07:02
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The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: CR 169
Page: 543

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

Originally posted by cloaked_vessel on 05 Apr 2005, 19:23.
Last edited by hazelnut on 12 Jun 2018, 07:02, edited 2 times in total.
OA Added
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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 05 Apr 2005, 19:29
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 MEGA’s own officers and directors.
- We won't know if this will actually happen

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

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New post 05 Apr 2005, 19:34
Thanks for the explanation. OA is C.
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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 05 Apr 2005, 20:34
cloaked_vessel wrote:
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.


C it is.

if sales/purchase < 2 ---> stock prices rise

now purchase = 9 sales, i.e. sales / purchase =1/9
so, stock prices will go up.
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Re: Corporate officers and directors commonly buy and sell, for their own [#permalink]

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New post 10 Feb 2014, 08:36
cloaked_vessel wrote:
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.


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

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New post 24 Jan 2017, 11:37
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The Official Guide for GMAT Review, 10th Edition, 2003

Practice Question
Question No.: CR 169
Page: 543

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

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New post 24 Jan 2017, 17:37
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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, 15:13
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, 05:48
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 14 Sep 2017, 19:42
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.

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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, 19:58
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, 19:58
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