Question 1) Assume semi annual payments, and these bonds are quoted in decimal dollars
A-goldman sachs 5.75% coupon 10 yr maturity, p=101.963
a- calculate the yam for the bond
B- 5.25% coupon, 9 yr maturity, ytm6.268
b- calculate the price for this bond assuming 1,000 face value
Question 2) Suppose the following 2 programs are available for 30 year mortgages:
option A: 6.125% (0 points)
option B: 5.50%(2 points)
a) For a $200,000 mortgage calculate the monthly payment for each mortgage program
b) use cost-benefit approach over a 30 year period except use (6.125% interest rate for discounting) which option do you recommend? time value of money calculation required
c) if you plan to live in the house for only 4 years which mortgage would you recommend? time value of money calculation required
d)if you plan on living in the house for 10 years which mortgage would you recommend? time value money calculation required
e) what is the break-even number if months you would have to live in the house to make indifferent between two mortgages? time value of money calculation required
Answers for the multiple choice:
Question 3: Because market and operating conditions are different in each target market:
A. all consumers will react similarly to the firm's pricing strategy.
B. the choice of a pricing strategy is specific to the target market.
C. prices need to be held constant because everything else is changing.
D. only horizontal price fixing should be used.
E. external reference prices will always be the best strategy.
Question 4: A weakness associated with cost-based pricing strategies is they:
A. they are too difficult to calculate.
B. infer a cost-price zoning relationship.
C. do not recognize the role that consumers or competitors' prices play in the marketplace.
D. do not allow for predatory pricing.
E. are structurally inflexible and ignore vertical price fixing alternatives.
Question 5: Compared to other pricing methods, _______________ pricing is relatively simple.
A. improvement value
B. value-based
C. everyday low pricing
D. reference-based
E. cost-based
Question 6: Cost-based pricing assumes costs:
A. are the only thing that matters.
B. vary with the level of prices.
C. are used to estimate value.
D. will not vary much for different levels of production.
E. are calculated based on historical consumer perceptions of what things should cost.
Strategic Pricing Methods
Question 7: Yvonne estimates the average cost of her floral arrangements is $14 regardless of whether she is doing 5 or 20 arrangements that day. She adds a standard markup to the $14 estimate to determine her price. Yvonne is using a ________________ pricing strategy.
A. improvement value
B. value-based
C. everyday low pricing
D. reference-based
E. cost-based
Question 8: Firms using a ____________ pricing method set their prices to reflect the way they want consumers to interpret their prices relative to what other firms are charging.
A. improvement value
B. value-based
C. competitor-based
D. reference-based
E. cost-based
Question 9: When Greenbelt Construction Company began building houses in a large subdivision with many other builders they priced their homes slightly higher than their competitors and promoted the added quality features in their homes. Greenbelt was using a
____________ pricing strategy.
A. improvement value
B. value-based
C. everyday low pricing
D. reference-based
E. competitor-based
Question 10: A company can win a price war and capture market share from competitors if __________.
A. the competitor doesn't notice
B. the market actually shrinks, so if the firm simply maintains its volume its market share will increase
C. the company has a strong cost advantage and can lower prices without sustaining a loss
D. the company doesn't actually lower its prices but only appears to
E. None of the above. A company cannot win a price war.
Strategic Pricing Methods
Question 11: ___________ pricing involves pricing a product above the prices set for competing products to capture those consumers who always shop for the best.
A. improvement value
B. value-based
C. competitor-based
D. premium
E. cost-based
Question 12: Premium pricing is not necessarily limited to luxury products, but can also be used for products that _____________.
A. are essentially commodities that are necessary
B. have a special appeal for customers like organic or natural foods
C. are in the mature phase of their life cycles
D. have substitutes that function like luxury products
E. are experiencing a temporary lull in demand
Question 13: For many years Bennington College in Vermont was the most expensive college in the country. The administration and board of trustees of Bennington were proud that their college had this distinction. Bennington College was using a ____________ pricing strategy.
A. improvement value
B. premium
C. consumer-based
D. reference-based
E. cost-based
Question 14: Value-based pricing methods include approaches to setting prices that focus on the overall value of the product offering:
A. when the product is produced.
B. as recognized by competitors.
C. as perceived by the consumer.
D. in order to minimize bundling charges.
E. relative to the cost of leadership pricing.
Strategic Pricing Methods
Question 15: In determining the price for his company's new small business accounting software, Raymond is assessing how much better the software is as compared to alternative products available in the market. Raymond is using the _____________ method to pricing strategy.
A. improvement value
B. odd-even
C. everyday low pricing
D. reference based
E. cost-based
Question 16: Each generation of cell phones has provided greater clarity, range, and multi-functionality. Marketers of cell phones used these upgrades in ____________________ pricing strategies.
A. everyday low pricing
B. odd-even
C. improvement value
D. reference based
E. cost-based
Question 17: In determining the price for his company's new personal computer photography printer, Raymond is assessing the total cost of owning his printer as compared to alternative products available in the market. Raymond is using the _______________ method to pricing strategy.
A. improvement value
B. odd-even
C. everyday low pricing
D. reference based
E. cost of ownership
Question 18: Ben owns a lawn care business. From experience, Ben has found that John Deere equipment lasts almost twice as long as competitors' machines. For John Deere, Ben's perception about their products makes a ______________ pricing strategy possible.
A. improvement value
B. odd-even
C. everyday low pricing
D. reference based
E. cost of ownership
Question 19: One of the difficulties associated with value-based pricing is:
A. costs are invaluable.
B. only the creator of a new product can fully understand its value to consumers.
C. value depends on variable costs and not fixed costs.
D. everyday low pricing has neutralized the impact of price on consumers' purchase decisions.
E. it necessitates a great deal of consumer research to be implemented successfully.
Question 20: One of the difficulties associated with value-based pricing is:
A. the way consumers perceive value constantly changes.
B. only the creator of a new product can fully understand its value to consumers.
C. value depends on variable costs and not fixed costs.
D. everyday low pricing has neutralized the impact of price on consumers' purchase decisions.
E. costs are invaluable.
Question 21: When Sony introduced their new PlayStation 3 game system, buyers who could not get them the first day from retailers bid up the price of the systems on eBay and other auction sites. As Sony provides more PlayStation 3 units to the market and the early demand for them is satisfied, prices will likely drop as:
A. the way consumers perceive value constantly changes.
B. Sony fully understands its value to consumers.
C. variable costs become constant and fixed costs increase.
D. everyday low pricing neutralizes the impact of price on consumers' purchase decisions.
E. all of the above.
Question 22: Understanding the ________________ underlying the way consumers arrive at their perceptions and make judgments is critical to effective pricing strategies.
A. biology
B. psychology
C. financial accounting
D. organic chemistry
E. demography
Question 23: When consumers are exposed to a price and think "this is a deal" or "Wow, that is expensive," they are:
A. calculating the benefit-cost ratio associated with producing that product.
B. engaged in a bait-and-switch self-deception.
C. assigning a meaning to the price.
D. responding to the vertical pricing effect.
E. using a mental zone pricing technique.
Question 24: A reference price is:
A. the actual price.
B. the price against which buyers compare the actual selling price.
C. the bait and switch cost to the producer.
D. a cumulative quantity discount price.
E. the external horizontal fixed price.
Question 25: In determining the price for his company's new pocket digital camera, Matt is assessing what consumers consider the regular or original price for similar cameras available in the market. Matt is assessing the _______________ influence on pricing strategy.
A. improvement value
B. odd-even
C. everyday low pricing
D. reference-based
E. cost of ownership
Question 26: When a seller labels a product with the "regular price" or the "original price," and then offers a lower price, they are creating a(n):
A. improvement value price.
B. odd-even price.
C. everyday low price.
D. external reference price.
E. cost of ownership price
Question 27: Marketers in "flea markets" often leave the original price on products they are selling at a significant discount, recognizing that consumers will often use the original price as a(n):
A. improvement value price.
B. odd-even price.
C. everyday low price.
D. cost of ownership price.
E. external reference price.
Question 28: An internal reference price is:
A. the actual price.
B. the consumer's idea of what the price should be.
C. the bait and switch cost to the producer.
D. a cumulative quantity discount price.
E. the external horizontal fixed price.
Question 29: Loren walked into his local beverage store and found his favorite beverage at $3 less than what he paid last week. He immediately bought enough to last for at least a month. Loren was responding to his:
A. external everyday low price.
B. high/low bait switching price.
C. internal reference price.
D. price bundling concept.
E. perception of price skimming.
Question 30: The last price a consumer paid or what they expect to pay is their:
A. external premium price.
B. high/low bait switching price.
C. uniform delivered price perception.
D. internal reference price.
E. perception of price skimming.
Question 31: When consumers are repeatedly exposed to higher external reference prices, their internal reference prices:
A. become a stronger influence on their perception of value.
B. become easily subject to predatory pricing.
C. offer competitors the opportunity for vertical price fixing.
D. allow retailers to increase slotting allowances.
E. shift toward the higher external reference price.
Question 32: After repeatedly seeing signs advertising new homes in her area in the range of $400,000 to $550,000, Connie shifted her internal reference price for houses upward. When she looks at individual homes in this price range, Connie will now perceive them as:
A. a better deal than before.
B. being outrageously over-priced.
C. offering a cumulative quantity discount.
D. engaged in horizontal price-fixing.
E. premium prices.
Question 33: An everyday low pricing strategy stresses the continuity of retail prices:
A. at a level above regular retail prices and below deep-discount prices.
B. based on horizontal price fixing.
C. bundled with cost-based, cash discounts.
D. at a level somewhere between the regular price and the deep-discount sale prices competitors may offer.
E. at a price skimming level.
Question 34: Everyday low pricing (EDLP) provides value to consumers by:
A. continually offering items on sale.
B. minimizing the number of options a consumer can evaluate.
C. noncumulative quantity discounts.
D. reducing their search costs.
E. price discrimination.
Question 35: In a __________ pricing strategy, marketers rely on the promotion of sales, during which prices are temporarily reduced to encourage purchases.
A. high/low
B. premium
C. discount
D. horizontal flattening
E. vertical triangulation
Question 36: It is important to Joanne to get value for her money but, she does not want to spend time comparison shopping. Joanne will likely respond to ____________ pricing but not ____________ pricing.
A. high/low; everyday low
B. premium; everyday low
C. discount; vertical
D. horizontal; flattening
E. everyday low; high/low
Question 37: Dan is especially price sensitive. He has been known to line up on "Black Friday" (the day after Thanksgiving) at 4 a.m. in order to be among the first to buy sale items. Dan would likely respond to a ____________ pricing strategy.
A. high/low
B. premium
C. slotting allowance
D. horizontal flattening
E. vertical triangulation
Question 38: One of the problems associated with an everyday low pricing (EDLP) strategy is:
A. stores may have to offer too many noncumulative wholesaler discounts.
B. some consumers may associate EDLP with lower quality goods.
C. the retailer may be accused of price discrimination.
D. too many coupons may be redeemed.
E. it may conflict with price-based cost calculations.
Question 39: Odd prices:
A. suggest low quality.
B. show the experience curve effect.
C. are predatory prices.
D. allow marketers to avoid having to do markdowns.
E. are consistent with price discrimination.
Question 40: Most marketers think odd pricing got started as a way to:
A. institutionalize price discrimination.
B. prevent sales clerks from pocketing money.
C. prevent market monopolization.
D. coordinate horizontal price fixing.
E. establish prestige pricing.
Question 41: The main finding from research on the odd pricing approach is that odd prices signal to the consumers that the price:
A. is guaranteed.
B. is likely to be adjusted daily.
C. is low.
D. is part of a noncumulative discount strategy.
E. is part of a price skimming strategy.
Question 42: When consumers have considerable experience with a product or brand, or are knowledgeable about the quality associated with a class of products, price:
A. becomes the determining factor in comparing quality among individual products.
B. strategy needs to focus on cost-based pricing.
C. discrimination is less valuable as a quantity discount strategy.
D. represents improvement value rather than a high/low indicator.
E. becomes less important as a measure of quality.
Question 43: In addition to price, consumers often use __________________ to judge quality.
A. the store
B. brand names
C. warranties
D. where the product was produced
E. all of the above
Question 44: Darren is shopping for a new refrigerator in a discount appliance store. He does not have any special knowledge about refrigerators, does not recognize any of the brand names, sees the prices for similar size models are all about the same, and all offer a one-year warranty. Darren will probably use _____________ to determine which refrigerator to buy.
A. the store
B. brand names
C. warranties
D. where the product was produced
E. all of the above
Question 45: Developing pricing strategies for ____________ is one of the most challenging tasks a manager can undertake.
A. competitors' products
B. seasonal rebate items
C. new products
D. zone pricing products
E. quantity discount goods
Question 46: Pricing ________________ products is especially challenging because little or nothing is known about consumers' perceptions of value.
A. competitors' products
B. seasonal rebate items
C. quantity discount goods
D. "new-to-the-world" products
E. zone pricing products
Question 47: Charging a relatively high price for new and innovative products to those consumers most willing and able to pay the high price is called price:
A. penetration.
B. bundling.
C. fixing.
D. referencing.
E. skimming.
Question 48: Price skimming focuses on selling products to ______________ and _____________ in the consumer adoption process model.
A. innovators and early adaptors
B. early adaptors and early majority
C. early majority and late majority
D. late majority and laggards
E. laggards and innovators
Question 49: For marketers using a price skimming strategy, once the initial demand is met for new and innovative products, they will likely:
A. leave the market.
B. discontinue the product and create a new one.
C. offer deep discounts in order to create a loss leader pricing strategy.
D. lower the price to capture the next most price sensitive market segment.
E. use zone pricing to maximize zonal differences.
Question 50: For a price skimming strategy to work, the product or service must:
A. be bundled with products or services already available on the market.
B. be similar to what consumers are already comfortable with.
C. be produced in the United States.
D. be regulated under the Fair Pricing and Statutes Act (1977).
E. offer consumers some new benefit currently unavailable.
Question 51: Marketers use a price skimming strategy for any or all of the following reasons EXCEPT:
A. recoup high research and development costs.
B. to signal high quality.
C. to limit demand.
D. to penetrate a market.
E. test consumers' price sensitivity.
Question 52: When Burroughs-Welcome introduced the first anti-AIDS drugs, they initially set the price at $10,000 for a year's supply. Burroughs-Welcome was probably pursuing a ________________ pricing strategy.
A. skimming.
B. cash discount
C. slotting allowance
D. penetration
E. seasonal
Question 53: Some electronics manufacturers intentionally limit the supply of new products initially available in the market, charge full retail prices, and even encourage consumers to resell the devices on eBay. These firms are probably using a price skimming strategy to:
A. recoup high research and development costs.
B. signal high quality.
C. expand demand.
D. penetrate a market.
E. test consumers' price sensitivity.