Evaluating Arguments on Stock Market Reaction
XAT 2017 · Verbal Ability & Logical Reasoning · Medium · Critical Reasoning
Read the following passage and answer the question that follows: On Friday morning, Dieting supplement sales company Herbalife agreed to pay the US Federal Trade Commission a $200 million fine. The FTC said Herbalife cheated hopeful salespeople out of hundreds of millions of dollars with a high-pressure multi-level marketing scheme. Herbalife's stock received an immediate 15% increase following the above news. The company also announced that it would hire a second former FTC commissioner in a press release describing the terms of the settlement.
Which of the following options would imply that the 15 percent increase in stock price is fair?$
- A.
Cheating results in increase in the company's stock price.
- B.
When fraudulent companies are exposed, their stock price increases.
- C.
When fraudulent companies are caught, their stock price initially goes down.
- D.
Acknowledgement of deceit increases the stock price of companies.
- E.
Compliance with court order increases the company's stock price.
E
Explanation
Settling and complying with a regulatory order reduces uncertainty and legal liability, which fairly increases investor trust and stock value.
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