Suppose that investments in derivatives generated $5 million of revenu

QUESTION

Suppose that investments in derivatives generated $5 million of revenue for Domino Grace during this calendar year.

The managers who proposed offering derivatives contend that this statistic demonstrates that offering derivatives increased Domino Grace revenues this calendar year by $5 million. Which of the following points out a flaw in this argument?
A) It assumes that offering derivatives could not have generated less than $5 million.
B) It claims without warrant that offering derivatives will generate high revenues in future years.
C) It fails to demonstrate that offering derivatives generated more money than any alternative would generate.
D) It fails to account for the revenues that could have been generated by alternative uses of the resources that went into offering derivatives.
E) It ignores the possibility that some investors lost money by investing in derivatives through Domino Grace.

ANSWER

Answer: D
Explanation: D) The investments generated money, but it must have taken some effort and resources to generate that money. If those efforts and resources had been devoted to some other project, then that project could have made some money, too. The managers ignore this and so commit this flaw in Choice D. Choices A and B are bogus claims, but the managers don’t make those claims. Choice E doesn’t describe a flaw because the statistic describes what Domino Grace earned and not what the investors made on these investments.