Nick Is Planning on Setting Up a Small-Scale Guitar Manufacturing

question 5

Multiple Choice

Nick is planning on setting up a small-scale guitar manufacturing company.Nick isn't well versed in economics,so he doesn't understand the concept of supply and demand very well.What pricing strategy must Nick adopt?

• A)Skimming pricing
• B)Prestige pricing
• C)Psychological pricing
• D)Cost-based pricing

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Definitions:

Cost of Equity

This refers to the rate of return that a company is expected to offer investors to compensate for the risk of investing in its equity.

Beta

A measure of a security's volatility in relation to the overall market.

Risk-Free Rate

The theoretical return on investment with no risk of financial loss, often represented by the yield on government bonds.

Preferred Stock

A type of stock that grants holders preference in dividend payments and assets in the event of a liquidation, often without voting rights.