PrepTest 157, Section 4, Question 13
Passage A Markets, such as stock exchanges, distill(484 more words not shown)
Passage A(279 more words not shown)
Passage B(213 more words not shown)
Suppose that, in an attempt(51 more words not shown)
- Apassage A, since(16 more words not shown)
- Bpassage A, since(14 more words not shown)
- Cneither passage, since(13 more words not shown)
- Dpassage B, because(14 more words not shown)
- Epassage B, because(15 more words not shown)
Reading the passage
The attempted manipulation briefly pushes the price up. Then informed traders see a chance to sell overpriced contracts, and their trades undo the distortion. That's the mechanism A praises: people act on what they know, and their actions rapidly correct the price.
What we’re looking for
So the result supports A. We still need the right explanation of why; it doesn't show that a long-shot candidate's prospects could never genuinely improve.
Working the answers
- A
The problem is an artificial price spike, not an initially unpopular candidate becoming more likely to win. Genuine favorable news could support a sustained increase. This answer draws a general impossibility from one failed manipulation.
- BCorrect
Informed traders use their knowledge to profit from the inflated price, and the distortion quickly disappears. Accurate information affects the market through trading, just as A's fictional-stock experiment illustrates. The rapid correction is the evidence of efficiency.
- C
Its short life is precisely why the attempt matters. A predicts that information spreads quickly, so swift correction supports that account rather than proving nothing.
- D
We aren't told who eventually wins or loses. More importantly, the example concerns informed correction of an artificial price, not B's story about an election forecast favoring the eventual loser.
- E
A few investors temporarily moving the price doesn't establish majority opinion in the population. The corrective trades instead show how informed participants can counter the initial movement. That is more than a passive count of what most people believe.
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