Every person is, at times, troubled by the thoughts that their beliefs

Question

Every person is, at times, troubled by the thoughts that their beliefs are misplaced. Variations in stock-market returns are such a test of faith. Many investors in stock-market favor “value” stocks, stocks that have a low price relative to the basic value of a firm’s assets, over “growth” stocks, which have a high price to basic value ratio. Their choice is based on the idea that though the stock prices may vary with ’variations in market, the prices will not stay below their basic value for long. This idea is supported by the worth of a company’s resources- its buildings, machinery, etc. It has been observed that value stocks do better than growth stocks over the long run. If a person invests in value stocks and is patient, he is expected to get superior returns. However, with long waiting time, it is natural for doubts to emerge. Investors start doubting the merits of a firm’s book, which shows the basic value of its assets. The list of value stocks is generally found filled with shares of troubled firms. Yet for those who believe in value stocks, that is precisely the point. They buy stocks when the firm is in a problem, and with time the problem becomes less acute, increasing the stock prices. Thus, while investing in value stocks, one should keep in mind the principle associated with such investments and be patient. The returns will likely be superior.    1 
 1. What is the Main Point of the passage?

A. To discuss the risks related to investing in value stocks
B. To explain the different types of stocks
C. To identify the best investment options
D. To discuss value stocks
E. To criticize the investments done in value stocks

2 
 2. Which of the following cannot be inferred about the value stocks in the passage?

A. They are the stocks that have low price to basic value of firm’s assets ratio
B. Most of the investors favor investing in value stocks.
C. Their price may vary with time.
D. The worth of a company’s assets makes investing in value stocks safer.
E. The stock value of a firm’s stocks generally reduces when the }rm is in trouble.

3 
 3. What is meant by “troubled firms”?

A. Firms that have low stock prices
B. Firms that have their stocks listed as value stocks.
C. Firms that have very few assets
D. Firms that have stocks with high value to basic value ratio.
E. Firms that are facing some problem because of which their stocks prices are low.

4 
 4. As per the passage, what is the approach behind investing in value stocks?

A. The price of the value stocks keeps varying.
B. The value stocks take into account the company’s assets.
C. The price of a stock may reduce at times but eventually it will reach at least its real value.
D. The merits of a firm’s book cannot be doubted
E. The stock prices of a firm’s stock increase as the firm’s problem becomes acute.

RC Butler 2022  -  Practice Two RC Passages Everyday.   
Passage # 159 Date: 20-Apr-2022
 This question is a part of RC Butler 2022 .  Click here for Details

akash2703 · Answer

1. What is the Main Point of the passage?

A. To discuss the risks related to investing in value stocks
 Main idea is not just to highlight the risks, but also to keep in mind the basic principle associated with the Value stocks. 
B. To explain the different types of stocks
 Value stocks are evaluated while the growth stocks are not evaluated. 
C. To identify the best investment options
 No suggestions are given on which stock to choose. Value over growth. 
D. To discuss value stocks
 Correct. The main point is to evaluate the value stocks. 
E. To criticize the investments done in value stocks
 Same as A.

2. Which of the following cannot be inferred about the value stocks in the passage?

A. They are the stocks that have low price to basic value of firm’s assets ratio
  Many investors in stock-market favor “value” stocks, stocks that have a low price relative to the basic value of a firm’s assets, over “growth” stocks  
B. Most of the investors favor investing in value stocks.
  Many investors in stock-market favor “value” stocks, stocks that have a low price relative to the basic value of a firm’s assets, over “growth” stocks  
C. Their price may vary with time.
  Their choice is based on the idea that though the stock prices may vary with ’variations in market, the prices will not stay below their basic value for long  
D. The worth of a company’s assets makes investing in value stocks safer.
  This idea is supported by the worth of a company’s resources- its buildings, machinery, etc.  
E. The stock value of a firm’s stocks generally reduces when the }rm is in trouble.
 Not referenced in the passage.

3. What is meant by “troubled firms”?

A. Firms that have low stock prices
B. Firms that have their stocks listed as value stocks.
C. Firms that have very few assets
D. Firms that have stocks with high value to basic value ratio.
E. Firms that are facing some problem because of which their stocks prices are low.
 Correct 
 Between A and E. I will go with E as it is mentioned in the last para  They buy stocks when the firm is in a problem,

4. As per the passage, what is the approach behind investing in value stocks?

A. The price of the value stocks keeps varying.
B. The value stocks take into account the company’s assets.
C. The price of a stock may reduce at times but eventually it will reach at least its real value.
D. The merits of a firm’s book cannot be doubted
E. The stock prices of a firm’s stock increase as the firm’s problem becomes acute.
 Correct
 Reference last para: They buy stocks when the firm is in a problem, and with time the problem becomes less acute, increasing the stock prices.

TheWrongGrammer · Answer

Sajjad1994,
Why “C” is the right answer for Q4 and not “E”?

Posted from my mobile device

Sajjad1994 · Answer

(E) is the opposite:  This choice does not mention the approach behind investing in value stocks. Instead, it is opposite to what has been mentioned in the passage: They buy stocks when the firm is in a problem, and with time the problem becomes less acute, increasing the stock prices.

Nidhijain94 · Answer

Why is correct answer B for Q2?

Posted from my mobile device

Sajjad1994 · Answer

Official Explanation

2. Which of the following cannot be inferred about the value stocks in the passage?

Difficulty Level:   700

Explanation

(A) Out of scope:  It has been mentioned in the passage:
 …“value” stocks, stocks that have a low price relative to the basic value of a firm’s assets…

(B) Correct:  It cannot be inferred from the passage. The passage talks about  many investors , we cannot say that it is true for  most investors.

(C) Out of scope:  It has been mentioned in the passage:
 though the stock prices may vary with investor’s mood

(D) Out of scope:  It has been mentioned in the passage:
 This idea is supported by the worth of a company’s resources- its buildings, machinery, etc.

(E) Out of scope:  It has been mentioned in the passage:
 The list of value stocks is generally found }lled with shares of troubled firms. Yet for those who believe in value stocks, that is precisely the point. They buy stocks when the firm is in a problem, and with time the problem becomes less acute, increasing the stock prices.

Answer: B

Every person is, at times, troubled by the thoughts that their beliefs

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

Every person is, at times, troubled by the thoughts that their beliefs

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards