PT10.S4.Q24: Rate of Inflation vs. Rate of Return

Clemens_

(1) Most profitable investment: The rate of inflation EXCEEDS the rate of return by a given percentage (say, x%). That is, in real terms, the investment generates a loss; the inflation rate overcompensates whatever profit is being made here. According to the stimulus, this means that the VALUE of this investment declines by the same percentage (x%) at least. Value thus is presented as a function of profit.

(2) Any other investment – that is, any investment that is LESS profitable than the one described in case #1: The value of this investment declines by MORE than x% – that is, the differential between the inflation rate and the rate of return must be even greater than in case #1. Inflation overcompensates the rate of returns even more than in the first case.

Answer choice (C) suggests: The second investment (any investment that is not the most profitable one) is LESS profitable than the most profitable one. If VALUE is a function of PROFIT, and if VALUE in the second case declines more than in the first case, then the second case cannot describe the maximally profitable investment described in case #1.

I’m not sure I’m getting either the economics or the logic behind this right, but it seems to me that a lot of the information presented in the passage is redundant. To conclude what answer choice (C) says ("Case #2 does not describe the most profitable investment"), we only would have needed to know (1) that case #1 is the most profitable investment, and (2) that case #2 can be distinguished from that investment. Is this right / is there a more efficient way to solve this, especially under timed conditions?