Floyd, a Minor, Misrepresents His Age When Entering into a Contract

question 6

Multiple Choice

Floyd, a minor, misrepresents his age when entering into a contract to buy a car from Gas Hogs Inc. Floyd takes possession of the car, but makes no payments on the contract and tries to disaffirm it. Most likely, Gas Hogs can recover

• A) an amount equal to the wholesale value of the car.
• B) the car, but not any of the balance due on the contract.
• C) the balance due on the contract.
• D) nothing.

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Definitions:

Security Market Line

A graphical representation that shows the expected return of assets as a function of their systemic risk, represented by beta.

Risk-Free Rate

The return on investment with no risk of financial loss.

Market Risk Premium

The excess return that investors require for choosing to purchase stocks over risk-free securities.

SML Slope

The slope of the Security Market Line, which represents the risk-return trade-off at any given time, illustrating the expected return of a security per unit of risk.