For a Contract to Be Valid, Its Subject Matter Must

question 121

Multiple Choice

For a contract to be valid, its subject matter must be lawful. A contract is illegal and unenforceable if its subject matter:

• A) violates the common law
• B) is contrary to public policy
• C) violates state or federal statutory law
• D) none of the other choices
• E) all of the specific choices are correct

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Definitions:

Bonds

These are fixed-income investment products where an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate.

Debt Instruments

Financial assets that represent a debtor's obligation to repay borrowed money or other forms of credit to the creditor according to stated terms.

Original Issue Discount

The difference between the par (face) value of a bond and the lower price at which it was originally sold, which must be reported as interest income over the life of the bond.

Tax-exempt Debt

Debt securities issued by state or municipal governments whose interest payments are exempt from federal income tax, and sometimes state and local taxes.