After the Price of Smartphone Apps Falls, Justin Buys Fewer

question 303

Multiple Choice

After the price of smartphone apps falls, Justin buys fewer flash drives but he buys a new smartphone. For Justin

• A) smartphone apps and flash drives are complements, and smartphone apps and smartphones are substitutes.
• B) smartphone apps, flash drives, and smartphones are all complements.
• C) smartphone apps and flash drives are substitutes, and smartphone apps and smartphones are complements.
• D) smartphone apps, flash drives, and smartphones are not all complements.

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Definitions:

Risk-Free Interest

The rate of return on an investment with no risk of financial loss, typically associated with government bonds.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time.

Straight Bond Value

The value of a bond that pays a fixed interest rate (coupon rate) and does not have any embedded options such as convertibility or callability.

Convertible Bond

A bond that offers the option to be exchanged for a specific quantity of the issuing company's stock at chosen intervals throughout its tenure, generally at the choice of the person holding the bond.