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E
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
25%
(medium)
Question Stats:
81% (02:01) correct
19%
(02:01)
wrong
based on 294
sessions
History
Date
Time
Result
Not Attempted Yet
Company Spokesperson: Over the past several years, our company has more than doubled its revenues within the credit card division. However, over the same period, the division's profits have steadily declined, largely as a result of rapid increase in default rates on credit card loans among our customers. It is time to recognize that our previous strategy was flawed, since we failed to increase the average annual percentage rate (APR) charged on outstanding balances to compensate for the higher default rates. According to our estimates, increasing the interest charged on outstanding balances from an APR of 9.5% to an APR of 12% will be sufficient to compensate for the current rate of defaults and bring the division back to profitable growth.
Which of the following statements would most seriously undermine a plan to increase interest rates in order to spur profitable growth?
(A) Many other companies have experienced a similar trend in their default rates.
(B) The company's operating expeses are above the industry average and can be substantially reduced, thus increasing margins.
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
Which of the following statements would most seriously undermine a plan to increase interest rates in order to spur profitable growth?
(A) Many other companies have experienced a similar trend in their default rates.
(B) The company's operating expeses are above the industry average and can be substantially reduced, thus increasing margins.
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
06 Apr 2022, 07:02
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Which of the following statements would most seriously undermine a plan to increase interest rates in order to spur profitable growth?
We have to look for an answer which will weaken the plan to spur the profitable growth.
Premise - company has more than doubled its revenues within the credit card division but the division's profits have steadily declined, largely as a result of rapid increase in default rates on credit card loans.
conclusion - increasing the interest charged on outstanding balances from an APR of 9.5% to an APR of 12% will be sufficient to compensate for the current rate of defaults and bring the division back to profitable growth.
(A) Many other companies have experienced a similar trend in their default rates.
Other companies are not our concern.
(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.
Again, plan doesn't concern about the operating costs
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
Plan is not targeted towards the reason behind default rates.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
This is supporting the conclusion.
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
If because of the proposed plan,the no of defaulter increased, this will decrease the revanue.
We have to look for an answer which will weaken the plan to spur the profitable growth.
Premise - company has more than doubled its revenues within the credit card division but the division's profits have steadily declined, largely as a result of rapid increase in default rates on credit card loans.
conclusion - increasing the interest charged on outstanding balances from an APR of 9.5% to an APR of 12% will be sufficient to compensate for the current rate of defaults and bring the division back to profitable growth.
(A) Many other companies have experienced a similar trend in their default rates.
Other companies are not our concern.
(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.
Again, plan doesn't concern about the operating costs
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
Plan is not targeted towards the reason behind default rates.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
This is supporting the conclusion.
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
If because of the proposed plan,the no of defaulter increased, this will decrease the revanue.
20 Apr 2022, 00:33
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Revenue has increased but profits have steadily declined. Why? Because default rates has rapidly increased.
Conclusion: increasing the interest charged on outstanding balances from an APR of 9.5% to an APR of 12% will be sufficient to compensate for the current rate of defaults and bring the division back to profitable growth.
Meaning: The company believes that by increasing APR they can not only compensate for the defaults but also achieve profitable growth. Killing two birds with one stone
Pre-Think: We need to think in what cases will the company's plan to achieve profits fail even if APR is increased to 12%
What if, the customers continue to default? Actually, what if the default rates on credit card loans rapidly rises because the interest rate that customers need to pay is much higher (12%)?
So we can confirm E is the right answer:
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
(A) Many other companies have experienced a similar trend in their default rates.
Irrelevant because we are concerned with the credit card division of this company.
(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.
Yes it can help increase profits but the stem specifically states: undermine a plan to increase interest rates in order to spur profitable growth?
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
Out of Scope.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
If this happens, then does this weaken? Nope. It strengthens.
Conclusion: increasing the interest charged on outstanding balances from an APR of 9.5% to an APR of 12% will be sufficient to compensate for the current rate of defaults and bring the division back to profitable growth.
Meaning: The company believes that by increasing APR they can not only compensate for the defaults but also achieve profitable growth. Killing two birds with one stone
Pre-Think: We need to think in what cases will the company's plan to achieve profits fail even if APR is increased to 12%
What if, the customers continue to default? Actually, what if the default rates on credit card loans rapidly rises because the interest rate that customers need to pay is much higher (12%)?
So we can confirm E is the right answer:
(E) An increase in the APR charged on credit card balances often results in higher rates of default.
(A) Many other companies have experienced a similar trend in their default rates.
Irrelevant because we are concerned with the credit card division of this company.
(B) The company's operating expenses are above the industry average and can be substantially reduced, thus increasing margins.
Yes it can help increase profits but the stem specifically states: undermine a plan to increase interest rates in order to spur profitable growth?
(C) The rapid increase in default rates was due to a rise in unemployment, but unemployment rates are expected to drop in the coming months.
Out of Scope.
(D) The proposed increase in the APR will, alone, more than double the company's operating margins.
If this happens, then does this weaken? Nope. It strengthens.
