MrsSmith,a Nonmerchant,is Moving Out to a Smaller Apartment

question 23

Multiple Choice

Mrs.Smith,a nonmerchant,is moving out to a smaller apartment.Because of this,she wishes to sell her piano.George,who plans to use the piano in his nightclub,inspects Mrs.Smith's piano and decides to buy it.George pays Mrs.Smith and Mrs.Smith tells George he can take the piano at that moment.George says he needs to borrow his friend's truck before he can remove the piano.Mrs.Smith said that this was fine.That night,the piano is destroyed by fire.George sues to recover his money.Who wins?

• A) Mrs. Smith wins. The risk of loss passed to George as soon as the contract was made.
• B) Mrs. Smith wins. The risk of loss passed to George when Mrs. Smith said he could take the piano.
• C) George wins. The risk of loss does not pass until George takes delivery of the piano.
• D) George wins. The risk of loss does not pass until George receives a negotiable warehouse receipt.
• E) George wins. The risk of loss stays on Mrs. Smith since the goods were not conforming.

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Definitions:

Systematic Risk

The risk inherent to the entire market or an entire market segment, influenced by factors such as economic, geopolitical, and financial events, which cannot be eliminated through diversification.

Expected Return

The anticipated return on an investment, factoring in the probability of various outcomes.

Security Market Line

A line that represents the relationship between the risk of investing in a security and its expected return, as per the Capital Asset Pricing Model.

Market Risk Premium

The extra yield an investor anticipates when they invest in a volatile market portfolio as opposed to assets that are free from risk.