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Question

Difficulty: MediumComposition and Division (Part to Whole)

Financial Analyst: The recently formed Helios Mutual Fund is classified by regulatory agencies as a highly stable, low-volatility investment portfolio. The fund achieved this status by carefully balancing different sectors and asset classes. Therefore, the shares of Vertex BioLabs, a biomedical startup that was recently acquired as a component of the Helios Mutual Fund, must be a highly stable, low-volatility investment.

The financial analyst's argument is most vulnerable to criticism on the grounds that it

  1. illicitly infers that because a complex entity has a certain property, a specific component of that entity must also possess that same propertyAnswer
  2. B
    takes for granted that a condition that is sufficient to guarantee the stability of a portfolio is also necessary for its stability
  3. C
    infers a causal relationship between the regulatory classification of a fund and the financial performance of its constituent assets
  4. D
    relies on an ambiguous shift in the meaning of the phrase 'highly stable' over the course of the argument
  5. E
    fails to distinguish between the proportion of stable assets within the fund and the absolute number of those assets

Answer

The correct answer is the option stating that the argument illicitly infers that because a complex entity has a certain property, a specific component of that entity must also possess that same property.
The argument makes a classic error of division. It establishes that the mutual fund as a whole possesses a certain characteristic (being a highly stable, low-volatility investment). It then incorrectly concludes that a specific component of that fund (the shares of Vertex BioLabs) must possess that exact same characteristic. In reality, a stable fund is often created by balancing high-risk and low-risk investments, meaning an individual asset within it might be highly volatile.

Step-by-Step Solution

1
Analyze the argument's structure to identify the premises and the conclusion.
Premise: The Helios Mutual Fund is a highly stable, low-volatility portfolio. Conclusion: The shares of Vertex BioLabs, a component of the fund, must be a highly stable, low-volatility investment.
Separating premises from conclusions is the essential first step in evaluating logical reasoning.
2
Identify the logical relationship between the evidence and the conclusion.
The evidence describes a property of a whole entity (the mutual fund), and the conclusion assigns that exact same property to a constituent part of that entity (Vertex BioLabs shares).
Understanding the relationship between evidence and conclusion reveals the underlying assumption or flaw.
3
Determine why the reasoning is logically flawed.
It is logically invalid to assume that a part must have the same properties as the whole. A stable portfolio is typically constructed by combining and balancing highly volatile and low-risk assets.
Identifying the precise nature of the error allows you to match it with the correct abstract description in the choices.
4
Evaluate the answer choices to find the one that accurately describes this specific logical error.
The correct choice must describe the flaw of attributing a characteristic of a whole to one of its parts (the fallacy of division).
Flaw questions require an exact match between the argument's error and the abstract description provided in the correct option.

Key Concept

Fallacy of Division (Whole to Part)
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Topics

Composition and Division (Part to Whole)

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