Which of the following is not an example of a negative covenant provision?

Multiple Choice

• Limits the use of the loan to an agreed-upon purpose.

• Limits on capital expenditures.

• Restricts the payment of cash dividends.

• Limits on the borrowers total indebtedness.

Island Corporation owes Mutual Bank a 10% note payable for $100,000 plus $8,000 accrued interest. On October 1, 20X1. Island and Mutual Bank execute an agreement whereby Island will pay Mutual $128,000 on the due date of the note on October 1, 20X3.

What effective interest rate will Island use for the restructured note?

Multiple Choice

• 8.7%

• 10.0%

• 13.1%

• 8.9%