Jack and Jill are house hunting and find a house (House A) they really like but want to continue searching the market for one more week before making the final decision to buy House A. To avoid having someone else purchase House A while they continue their house hunting, they decide to place a $2,500 deposit on House A. This deposit will apply to the purchase price if they buy House A. If they do not buy House A, they will forfeit the $2,500. Essentially, Jack and Jill have a ________ on House A.

Question

Quizplus · Accepted Answer

Jack and Jill's deposit on House A gives them the right, but not the obligation, to buy the house at a later date. This is similar to a call option in finance, where the buyer has the right to purchase an asset at a set price within a specific timeframe. Since this involves a real asset (a house) rather than financial assets (like stocks or bonds), it is considered a real call option.

Jack and Jill Are House Hunting and Find a House