Share Trading Strategies

CAT 2008 Slot 1 · DILR · Hard · Logical Reasoning

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Passage / data set

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.

Question 1 of 5

On a day of fluctuating market prices, the share price of XYZ Ltd. ends with a gain, i.e, it is higher at the close of the day compared to the opening value. Which trader got the maximum return on that day?

  1. A.

    Bikram

  2. B.

    Chetan

  3. C.

    Abdul

  4. D.

    Bikram or Chetan

  5. E.

    cannot be determined

Answer

E

Explanation

Without knowing the exact hourly prices throughout the day, the returns cannot be determined.

Question 2 of 5

Which one of the following statements is always true?

  1. A.

    Abdul will not be one with the minimum return

  2. B.

    Return for Chetan will be higher than that of Bikram

  3. C.

    Return for Bikram will be higher than that of Chetan

  4. D.

    Return for Chetan cannot be higher than that of Abdul

  5. E.

    none of the above

Answer

E

Explanation

None of the statements are universally true under all price scenarios.

Question 3 of 5

On a "boom" day the share price of XYZ Ltd. keeps rising throughout the day and peaks at the close of the day. Which trader got the minimum return on that day?

  1. A.

    Bikram

  2. B.

    Chetan

  3. C.

    Abdul

  4. D.

    Abdul or Chetan

  5. E.

    cannot be determined

Answer

A

Explanation

On a continuously rising price day, buying earliest gives highest return. Abdul buys all at minimum price (10 am). Chetan buys more shares when prices are low and fewer when high. Bikram buys equal shares across all higher prices, giving him the highest average cost price and thus minimum return.

Question 4 of 5

Share price was at its highest at

  1. A.

    10 am

  2. B.

    11 am

  3. C.

    12 noon

  4. D.

    1 pm

  5. E.

    cannot be determined

Answer

A

Explanation

From the conditions given in the additional data, a>f>e>ba > f > e > b and a>c>da > c > d. Thus aa (10 am) is the highest.

Question 5 of 5

Which of the following is necessarily false?

  1. A.

    Share price was at its lowest at 2 pm

  2. B.

    Share price was at its lowest at 11 am

  3. C.

    Share price at 1 pm was higher than the share price at 2 pm

  4. D.

    Share price at 1 pm was higher than the share price at 12 noon

  5. E.

    none of the above

Answer

A

Explanation

Option (1) states share price was lowest at 2 pm, which contradicts f>ef > e (3 pm > 2 pm) and other inequalities. Thus option (1) is necessarily false.

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