An Example of the Outlet Substitution Bias in the Calculation

question 137

Multiple Choice

An example of the outlet substitution bias in the calculation of the CPI is a price increase in

• A) GPS units versus AAA map books.
• B) olive oil versus vegetable oil.
• C) a 2010 Honda Civic relative to a 2004 Honda Civic.
• D) textbooks bought through the campus bookstore relative to textbooks via Craigslist.
• E) a trip to Mexico for a couple that had previously taken vacations in Europe

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Definitions:

Callable

A term describing a financial security (e.g., a bond) that can be redeemed by the issuer before its maturity date at a predetermined price.

Call Premium

The extra amount that must be paid by the issuer to call a bond before its maturity date, above its par value.

Required Rate

The minimum rate of return on an investment that is necessary for it to be considered a viable option by investors or managers.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, accounting for its current market price, face value, interest payments, and time to maturity.