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CAT 2008 — DILR Question 13

Mixed PracticeEasy
Passage / Data

Answer the following question based on the information given below.

Abdul, Bikram and Chetan are three professional traders who trade in shares of a company XYZ Ltd. Abdul follows the strategy of buying at the opening of the day at 10 am and selling the whole lot at the close of the day at 3 pm. Bikram follows the strategy of buying at hourly intervals: 10 am , 11 am, 12 noon, 1 pm  and  2 pm, and selling the whole lot at the close of the day. Further, he buys an equal number of shares in each purchase. Chetan follows a similar pattern as Bikram but his strategy is somewhat different. Chetan’s total investment amount is divided equally among his purchases. The profit or loss made by each investor is the difference between the sale value at the close of the day less the investment in purchase. The “return” for each investor is defined as the ratio of the profit or loss to the investment amount expressed as a percentage.

Which one of the following statements is always true?

Answer & solution

Correct answer: none of the above

  • A

    Abdul will not be the one with the minimum return

  • B

    Return for Chetan will be higher than that of Bikram

  • C

    Return for Bikram will be higher than that of Chetan

  • D

    Return for Chetan cannot be higher than that of Abdul

  • none of the above

Solution

From the explanation seen till now we can rule out options 1, 3 and 4.

Now option 2 is only partially correct. We have seen that Chetan’s return would be higher than or equal to that of Bikram. It would be equal to Bikram’s return in the scenario when the share price remains at a constant value throughout the day.

∴ Option 2 is not always true.

Hence, option (e).

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CAT 2008 DILR Q13: Which one of the following statements is always true? — Solution | TheCATExam