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

Question

Quizplus · Accepted Answer

The promissory note that Jill and Mike have decided on is an installment note, as they have agreed for Mike to repay the $25,000 loan in monthly payments. The fact that the certificate of deposit is being used as collateral and there is a prepayment clause does not affect the type of promissory note.

Mike Deposited $100,000 in a Bank and Procured a Certificate