Five Years Ago Rogue Construction Inc

question 41

Multiple Choice

Five years ago Rogue Construction Inc.issued 20-year maturity fixed-rate bonds at par with a 10% coupon rate.Today those same bonds carry a 14% yield to maturity.Which of the following statements about this bond issue could be true?

• A)Since issue,the economy-wide rate of inflation has increased.
• B)The market believes there is greater risk associated with this bond than at the issue date.
• C)Both A and B may be true.
• D)Neither A nor B could be true.

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Definitions:

Skimming Pricing

A pricing strategy where a high price is set for a new product to maximize profits from segments willing to pay more, before prices are lowered over time.

Demand-oriented

A pricing strategy where prices are set based on the perceived value to the customer or demand for the product, rather than on the cost of the product or market competition.

Pricing Approach

Strategies and methodologies used by companies to set the selling price of their products or services, taking into account costs, market demand, competition, and profit margins.

Price-setting Process

The method by which a company determines the selling price of its products or services, considering costs, demand, competition, and profitability.