How to Calculate a Discount on a Promissory Note

by James Collins - Updated September 26, 2017
Use the redemption value to calculate the discount.

A promissory note is a written document that promises to repay a loan or debt under certain terms. The note usually specifies certain terms within the document. These terms include a specified series of payments over a certain amount of time. The promissory note will also specify the amount of the obligation and the interest rate that applies to the transaction. Sometimes promissory notes have no interest associated. In this case, the promissory note is issued at a discount to the amount received when the note is redeemed.

Obtain the amount paid for the promissory note. For instance, if you gave the issuer $9,800, this is the amount you paid for the promissory note.

Determine the redemption value of the note. For instance, if you are to receive $10,000 at the end of the note term, this is the redemption value of the promissory note.

Find the difference between the redemption value and the amount you paid for the note. For example, the difference between $10,000 and $9,800 is $200.

Calculate the discount. In dollar terms the discount is $200; however, the discount is usually expressed in percentage terms. Divide the difference between the redemption value and the amount paid by the amount paid to find the discount in percentage terms. The calculation is $200 divided by $9,800. The answer is .0204. Multiply this by 100 for the percentage. The answer is 2.04 percent.

About the Author

James Collins has worked as a freelance writer since 2005. His work appears online, focusing on business and financial topics. He holds a Bachelor of Science in horticulture science from Pennsylvania State University.

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