Which of the Following Is a Potential Problem with a High-Low

question 256

Multiple Choice

Which of the following is a potential problem with a high-low pricing strategy?

• A) It confuses and frustrates customers.
• B) It places too much emphasis on nonprice competition.
• C) It teaches customers to wait for sales, and therefore reduces profits.
• D) It is difficult to implement.

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Definitions:

Yield to Maturity

The total return anticipated on a bond if the bond is held until it matures, reflecting interest payments and price changes.

Price Yield Curve

A graph that shows the relationship between the yield of bonds and their maturities, illustrating how interest rates affect bond prices.

Convexity

A measure of the curvature in the relationship between bond prices and bond yields that demonstrates how the duration of a bond changes as the interest rate changes.

Modified Duration

A measure that estimates the price sensitivity of a bond to a one percent change in interest rates, adjusting for the changing yield to maturity.