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V01-39

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New post 16 Sep 2014, 01:56
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A
B
C
D
E

Difficulty:

  25% (medium)

Question Stats:

74% (01:08) correct 26% (01:07) wrong based on 68 sessions

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Community spokesperson: After a recent surge of foreclosures, many homes in our community are vacant and falling into disrepair. Property values are already falling, and, if action is not taken quickly, will fall even further when panicked residents begin to leave. Clearly the only way to prevent a snowball effect is to make it easy to purchase these vacant homes by offering potential buyers special mortgages with a low interest rate for the first two years. Which of the following, if true, represents the most significant potential problem that could arise with this plan ?

A. Interest rates in the area are already at a 5-year low, and it would be foolish of lenders to lower them even more.
B. Crime rates in the area have risen by 1% in the last year, making it less likely that potential buyers will be interested in moving to the area.
C. Most residents have lived in the area for over 20 years and do not want to leave their homes.
D. Low interests rates will likely attract buyers who will be unable to make payments when the interest rate goes up after the first two years.
E. There are few mortgage brokers in the area, making it unlikely that there will be enough personnel to assist a rush of potential home buyers.

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New post 16 Sep 2014, 01:56
Official Solution:

Community spokesperson: After a recent surge of foreclosures, many homes in our community are vacant and falling into disrepair. Property values are already falling, and, if action is not taken quickly, will fall even further when panicked residents begin to leave. Clearly the only way to prevent a snowball effect is to make it easy to purchase these vacant homes by offering potential buyers special mortgages with a low interest rate for the first two years. Which of the following, if true, represents the most significant potential problem that could arise with this plan ?

A. Interest rates in the area are already at a 5-year low, and it would be foolish of lenders to lower them even more.
B. Crime rates in the area have risen by 1% in the last year, making it less likely that potential buyers will be interested in moving to the area.
C. Most residents have lived in the area for over 20 years and do not want to leave their homes.
D. Low interests rates will likely attract buyers who will be unable to make payments when the interest rate goes up after the first two years.
E. There are few mortgage brokers in the area, making it unlikely that there will be enough personnel to assist a rush of potential home buyers.


Situation: A community spokesperson proposes offering easy mortgages to home buyers to attract them to a community where foreclosures have left many houses vacant.

Reasoning: Which identifies the biggest flaw in the plan to attract potential buyers? The community spokesperson is concerned that vacant homes will cause property values in the neighborhood to fall, and is looking for a permanent solution. The proposed solution would attempt to reverse the problem by making it easier for potential buyers to purchase vacant homes. If, however, mortgages are given to people who will be unable to make payments when interest rates rise after the first two years, the neighborhood will see even more foreclosures and vacant houses, and the snowball effect will only have been delayed.
  1. This may be true, but is not the most significant potential problem.
  2. Though crime rates are a concern, this option does not directly address a potential problem with mortgages.
  3. Whether or not residents want to leave their homes is irrelevant to the soundness of the plan.
  4. If vacant homes in the area are purchased primarily by people who will only be able to afford their mortgage payments for the first two years, then after than time period, another series of foreclosures will leave the homes vacant once again.
  5. This option does not directly address the soundness of the plan to offer low-interest mortgages for the first two years.

Answer: D
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New post 07 Aug 2015, 05:42
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Cant' understand the logic of the OA.

The question asks us:
Which of the following, if true, represents the most significant potential problem with the plan to attract buyers through special mortgage offers?

OA states that FUTURE event will doubt the CURRENT plan. E.g.
- on the one side OA states that "Low interests rates will likely attract buyers" and this part supports the argument
- on the other hand OA states that "buyers will be unable to make payments when the interest rate goes up after the first two years." - this is something about the FUTURE event and do not has an influence on the attraction AT THE TIME OF ATTRACTION.
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New post 01 Jan 2016, 20:31
I thought the question was asking about the "attract" part of the plan, so I selected B because the crime rate wouldn't attract potential buyers.
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New post 28 Dec 2016, 14:22
Completely agree with sergge here. The question states that the plan is to prevent snowball effect - attract new buyers. How does the option D represent a problem? Option D talks about an event that will happen 2 years later. But the present problem will still be solved!! Please clarify and provide a more clear explanation.
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New post 29 Dec 2016, 01:06
theincredible wrote:
Completely agree with sergge here. The question states that the plan is to prevent snowball effect - attract new buyers. How does the option D represent a problem? Option D talks about an event that will happen 2 years later. But the present problem will still be solved!! Please clarify and provide a more clear explanation.


The question is about "the most significant POTENTIAL problem that could arise with this plan". The question is NOT about whether the current problem will be solved or not.

You have erroneously assumed a different question. Your argument would be valid if the question were something like:
Which of the following, if true, most seriously calls into question that the plan would be successful in preventing the anticipated snowball effect (i.e. the CURRENT problem)?
The given question is totally different from this one.
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New post 05 Apr 2018, 08:21
Try this one. Similar to the discussed question, but with a nuance
https://gmatclub.com/forum/qotd-248691.html?fl=similar
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V01-39   [#permalink] 05 Apr 2018, 08:21
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