The Calculated Price Elasticity of Demand

question 78

Multiple Choice

The calculated price elasticity of demand:

• A) is always a negative number, although it is sometimes reported as an absolute value.
• B) is sometimes negative and sometimes positive, depending on the magnitude of response.
• C) is always a positive number, because price and quantity are directly related in terms of demand.
• D) can be positive or negative, but is always reported as an absolute value.

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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.