On April 1 Richard arranges to buy a sixteen-speed bike from his neighbor Phil for $500. Phil agrees to deliver the bike on May 1. Richard writes a draft for $500 payable to Phil on May 1. In this situation, the draft is
A) a certificate of deposit.
B) a time draft.
C) a sight draft.
D) a promissory note.

Question

Quizplus · Accepted Answer

The draft is a time draft because it is payable on a specific date in the future, which is May 1. It is not a certificate of deposit because that refers to a type of savings account. It is not a sight draft because a sight draft is payable upon presentation, whereas this draft is payable on a future date. It is also not a promissory note because a promissory note is a written promise to pay a certain amount of money, whereas this draft is an order to pay a certain amount of money on a specific date.

On April 1 Richard Arranges to Buy a Sixteen-Speed Bike