Test Preparation on CAT Model Test Data Interpretation Logical And Reasoning

Option(E) is correct

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.

Firstly, let us try to understand the way the investments of the three traders behave.

Abdul buys shares at 10 am everyday and sells them at a particular price at 3 pm. So his return is determined by the difference in the share price at these two times.

Bikram and Chetan buy shares at equal intervals. But since Chetan buys them in equal amount he would end up buying more when the price is less and less when the price is more.

Whether the prices are continuously rising or continuously falling down or in a fluctuating market, Chetan always has a higher proportion of lower priced shares as compared to Bikram. This increases his profit in a rising market and reduces his loss in a falling market. Therefore Chetan never has return lower than that of Bikram.

We have explained this concept by taking examples. For more depth we have also provided the theoretical explanation.

The theoretical explanation is only for better understanding and may not be suitable in a test environment.

Consider the scenario when the share price keeps rising throughout the day.

Let the share price at 10 am be Rs. 100, 11 am be Rs. 110, 12 noon be Rs. 140, 1 pm be Rs. 150, 2 pm be Rs. 180, and finally at 3 pm be Rs. 200.