Reading Passage Question

Every person is, at times, troubled by the thoughts that their beliefs are misplaced. Variations in stock-market returns are such a test of faith. Many investors in stock-market favor “value” stocks, stocks that have a low price relative to the basic value of a firm’s assets, over “growth” stocks, which have a high price to basic value ratio. Their choice is based on the idea that though the stock prices may vary with ’variations in market, the prices will not stay below their basic value for long. This idea is supported by the worth of a company’s resources- its buildings, machinery, etc. It has been observed that value stocks do better than growth stocks over the long run. If a person invests in value stocks and is patient, he is expected to get superior returns. However, with long waiting time, it is natural for doubts to emerge. Investors start doubting the merits of a firm’s book, which shows the basic value of its assets. The list of value stocks is generally found filled with shares of troubled firms. Yet for those who believe in value stocks, that is precisely the point. They buy stocks when the firm is in a problem, and with time the problem becomes less acute, increasing the stock prices. Thus, while investing in value stocks, one should keep in mind the principle associated with such investments and be patient. The returns will likely be superior.

“Every person is, at times, troubled by the thoughts that their beliefs” is a GMAT reading comprehension passage. The candidates are required to know a precise knowledge of English GMAT reading comprehension. The GMAT Reading Comprehension section mainly includes three sets of comprehension questions with a list of answers. The GMAT Reading Comprehension questions evaluate the efficiency of the students to learn and employ concepts or knowledge. The candidates can gain further knowledge by practising these GMAT Reading Comprehension Practice Questions.

Solutions and Explanation

1. What is the Main Point of the passage?

1. To discuss the risks related to investing in value stocks
2. To explain the different types of stocks
3. To identify the best investment options
4. To discuss value stocks
5. To criticize the investments done in value stocks

2. Which of the following cannot be inferred about the value stocks in the passage?

1. They are the stocks that have low price to basic value of firm’s assets ratio
2. Most of the investors favor investing in value stocks.
3. Their price may vary with time.
4. The worth of a company’s assets makes investing in value stocks safer.
5. The stock value of a firm’s stocks generally reduces when the }rm is in trouble.

3. What is meant by “troubled firms”?

1. Firms that have low stock prices
2. Firms that have their stocks listed as value stocks.
3. Firms that have very few assets
4. Firms that have stocks with high value to basic value ratio.
5. Firms that are facing some problem because of which their stocks prices are low.

4. As per the passage, what is the approach behind investing in value stocks?

1. The price of the value stocks keeps varying.
2. The value stocks take into account the company’s assets.
3. The price of a stock may reduce at times but eventually it will reach at least its real value.
4. The merits of a firm’s book cannot be doubted
5. The stock prices of a firm’s stock increase as the firm’s problem becomes acute.

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