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# Many managers of mutual funds proclaim that they have been

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Manager
Status: want to get 720+in GMAT
Joined: 13 Mar 2011
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24 Aug 2011, 03:19
+1 for D
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24 Aug 2011, 08:54
IMO D

gurpreet07 wrote:
Many managers of mutual funds proclaim that they have been able to generate consistently higher rates of return on their investments than the general stock market bu buying shares of undervalued companies. Classical economic theory, however, proposes the "efficient capital markets hypothesis", which proposes that stock prices accurately reflect the value of the underlying investments, incorporating all information available to the public. if the efficient capital markets hypothesis is correct, then it should be expected that_____________.

A) mutual fund managers, in order to compete with each other, will bid up the prices of certain stocks beyond their true values - too extreme an option.

B) mutual fund managers use insider information, an illegal practice, to generate higher rates of return than the general stock market. again an extreme option. Always remember that we have to leave our emotions aside and use the information given in the passage only

C) stock price will rise over time - if this option were true, it would negate the classic economists theory that markets are efficient because if markets are efficient, the stock price is no more undervalued and hence may or may not rise

D) given public information alone, companies cannot reliably be labeled undervalued or overvalued relative to to the general stock market -this is the only one which is going with the classic economists theory and indicates that to pick undervalued stocks, fund managers need more information than is available to market.

E) some mutual fund managers are better than others at generating a higher rate of return on investments - -out of scope

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24 Aug 2011, 10:18
I got D. What is the OA?

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24 Aug 2011, 10:35
+1 for D
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Re: Many managers of mutual funds proclaim that they have been [#permalink]

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16 Sep 2014, 12:18
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

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Re: Many managers of mutual funds proclaim that they have been [#permalink]

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18 Oct 2016, 02:14
Hello from the GMAT Club VerbalBot!

Thanks to another GMAT Club member, I have just discovered this valuable topic, yet it had no discussion for over a year. I am now bumping it up - doing my job. I think you may find it valuable (esp those replies with Kudos).

Want to see all other topics I dig out? Follow me (click follow button on profile). You will receive a summary of all topics I bump in your profile area as well as via email.

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Re: Many managers of mutual funds proclaim that they have been [#permalink]

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17 Jun 2017, 05:02
hitman4683v1 wrote:
Looks like C

Premise: Classical economic theory however, proposes the "efficient capital markets hypothesis", which proposes that stock prices accurately reflect the value of the underlying investments, incorporating all information available to the public

Result: Many managers of mutual funds proclaim that they have been able to generate consistently higher rates of return on their investments than the general stock market bu buying shares of undervalued companies

These are two disconnected statements. If the undervalued company is to generate higher returns, its stock price or share value based on the underlying investments needs to increase
Hence this indicates C

Please let me know the OA and also errors if any in my line of reasoning

Hello. I arrived at the same answer as you, "C", using the same logic. Did you get the final explanation why "C" is wrong? I have read the complete thread, but am still not clear.

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Re: Many managers of mutual funds proclaim that they have been   [#permalink] 17 Jun 2017, 05:02

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