Question

Mike deposited $100,000 in a bank and procured a certificate of deposit on it, payable to himself, for repayment in five years with a five percent interest rate. A year after that, Mike borrowed $25,000 from Jill, and gave her a promissory note to repay it in one year. As collateral, Mike gave Jill the certificate of deposit and asked to put in a prepayment clause, to which Jill agreed. They agreed that Mike could repay in monthly payments, as mentioned in the note.What kind of promissory note have Jill and Mike decided on?
A) a time note
B) a bearer's note
C) a mortgage note
D) an installment note

Answer 1

Answer:

The correct answer is letter "D": an installment note.

Explanation:

An installment note is a promissory commitment for payment of the principal and interest of a debt. The payments are distributed in equal periods of time -usually monthly, and represent the amortization of the total amount owed. According to the agreement, a minimum amount can be established to be paid to avoid more debt.