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

question 10

Multiple Choice

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. In which of the following ways will the prepayment clause help Jill?

• A) It helps Jill to shorten the repayment period when she wishes.
• B) It helps Jill acquire the whole amount in one payment in case Mike defaults.
• C) It allows Mike to repay earlier than the stipulated time.
• D) It obligates Mike to pay interest on the money he defaults.

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Definitions:

Concentrate

To focus one's attention or mental effort on a specific object, task, or activity.

Sleeping

The natural state of rest characterized by altered consciousness, relatively inhibited sensory activity, and reduced muscle activity, vital for health and well-being.

Mortality

The state of being mortal or the incidence of death within a specific population or demographic.

Personal Friendships

Relationships based on mutual affection, trust, and support between individuals.