Question

Lucas is planning to buy a house owned by Janet. He gives her an initial amount of $10,000 to hold the offer open for a 45-day period. Janet will deduct the $10,000 from the purchase price if Lucas purchases the property within those 45 days. If he does not, Janet can keep the $10,000 and offer the house to another party. Which of the following contracts does this scenario best illustrate?

A. Option contract
B. Void contract
C. Implied contract
D. Executed contract

Answer 1

The correct answer is letter "A": Option contract.

Step-by-step explanation:

An option contract gives a buyer the right but not the obligation to purchase an asset at a certain price -usually fixed- and date. The term is mostly used while talking about stocks. A buyer can profit both from the upward and downward movements of the stock price. If the price goes up, the investor could bet on call options while the decreasing price could allow investors to profit from put options.

Lucas's case reflects an option contract because he is planning to purchase a house from Janet at a price and date in the future but he agreed in not having the obligation to buy the house when that date arrives.