Mike Contracted to Buy Rita's House in a Written Contract

question 57

Multiple Choice

Mike contracted to buy Rita's house in a written contract that provided for a deposit of $10 000 to be forfeited in the event of Mike's failing to go through with the deal.This deposit was an honest estimate of the damages Rita would suffer.On these facts,which of the following is true?

• A)If the contract price agreed upon was $150 000 and Rita,after Mike breaches the contract,sells the house in one week for $138 000,she will still be able to recoup all her losses.
• B)If Mike breaches the contract,he would not have to pay $10 000 even if Rita suffered a substantial loss.
• C)If Mike breaches the contract,he will have to pay Rita all damages that directly and naturally flow from the breach.
• D)If Mike breaches the contract,he would have to pay $10 000 even if Rita's actual loss was $40 000.
• E)A clause in a contract that provides for the forfeiture of a deposit is called an exemption clause.

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Definitions:

Alpha Coefficient

A measure of the performance on a risk-adjusted basis, identifying the excess return of an investment relative to the return of a benchmark index.

Nonsystematic Variance

The portion of an investment's total variance that is specific to the investment itself, not related to the overall market movements, and can be reduced by diversification.

Market Index

A statistical measure that represents the value of a section of the stock market, compiled from the prices of selected stocks to gauge market trends or portfolio performance.