Professor Kremepuff Has Published a New Textbook

question 16

Multiple Choice

Professor Kremepuff has published a new textbook. This book will be used in classes for two years, at which time it will be replaced by a new edition. The publisher charges a price of $p₁ in the first year and $p₂ in the second year. After the first year, bookstores buy back copies from students for $ and resell them to students in the second year for $p₂. (Students are indifferent between new and used copies.) The cost to a student in the first year of owning the book for a year is therefore $(p₁ - ) . In the first year of publication, the number of students willing to pay $v to own the book for a year is 60,000 - 1,000v. The number of students taking the course in the first year who are willing to pay at least $w to keep the book for reference rather than resell it is 60,000 - 5,000w. In the second year, the number of students who have not previously taken the course and are willing to pay at least $p for a copy of the book is 50,000 - 1,000p. If the publisher sets a price of $p₁ in the first year and $p₂ in the second year, with p₁ B3 p₂, then the total number of copies that the publisher sells over two years will be equal to

• A) 110,000 - 1,000(p₁ +).
• B) 120,000 - 1,000(p₁ -).
• C) 120,000 - 3,000p₂.
• D) 120,000 - 1,000p₁ - 1,000p₂.
• E) 110,000 - 1,500p₂.

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Definitions:

Callable Bonds

Bonds that have a provision that the issuer can repurchase, or call in, the bonds at specified dates if the board of directors authorizes the retirement (payoff) of the bonds before their maturity date.

Interest Rates

The cost of borrowing money, expressed as a percentage of the amount borrowed.

Maturity Date

The final day of a note on which the borrower (the maker of the note) pays the face value and any interest due to the holder of the note. The due date.

Dollar Amount

The specific value of a transaction or balance in currency terms.