Bob in Burnaby Called Ed in Toronto and Offered to Sell

question 96

Multiple Choice

Bob in Burnaby called Ed in Toronto and offered to sell him 40 kilograms of smoked salmon at $15 per kilogram. He requested that Ed phone him back by noon the next day. That way, Bob could offer it to someone else if Ed wasn't interested. Instead of phoning, Ed sent a letter of acceptance, in which he said that he would have his agent pick up the fish. On these facts, which of the following is false?

• A) If using the mail was unreasonable, the acceptance could not be effective until it was received.
• B) If using the mail was unreasonable, the acceptance was effective when it was mailed.
• C) The place of formation of the contract, if there was one, was Burnaby if the use of the mails was unreasonable.
• D) The place of formation of the contract, if there was one, was Toronto if the use of the mails was reasonable.
• E) Although a response by phone was requested, a response by mail would be effective if received before noon the next day.

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Definitions:

Put Option

A financial contract that gives the holder the right, but not the obligation, to sell a specified amount of an underlying asset at a predetermined price within a specified time frame.

Black-Scholes Option Pricing Model

A mathematical model for pricing European-style options, assessing the variations in market conditions over time.

Empirical Tests

Analytical procedures that use observed and historical data to test hypotheses and validate theories or models.

Mispricing

The occurrence when the market price of a financial instrument does not accurately reflect its intrinsic value, due to various factors.