Use the tabs to calculate (1) a single-payment note’s value at a future time using the note’s stated annual rate, (2) a discounted (present) note price given a required yield, or (3) the present value of remaining installment payments.
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Promissory Note Value Formula
The “value” of a promissory note depends on what you are trying to compute. The calculator above supports the following common cases.
\begin{aligned}
FV &= OP(1+IR)^{t} \\
PV_{\text{single}} &= \frac{FV}{\left(1+\frac{Y}{m}\right)^{mt}} \\
PV_{\text{installment}} &= P\cdot \frac{1-(1+y)^{-N}}{y}, \quad y=\frac{Y}{k}
\end{aligned}- Where FV is the note’s future value at time t for a single lump-sum (no interim payments)
- OP is the original principal ($)
- IR is the stated annual interest rate on the note (decimal form), assuming annual compounding in the “Single Value (Original)” tab
- t is the number of years
- PVsingle is the present value (price today) of a single-payment amount FV discounted at an annual market yield Y compounded m times per year
- PVinstallment is the present value (price today) of remaining installment payments P, with N remaining payments, discounted at periodic yield y where k is payments per year
For a simple single-payment note held to maturity, you can compound the principal to find the future value. For a market/resale value, discount the remaining cash flows at an appropriate market yield (and in practice, expected cash flows may also reflect credit risk and payment probability).
What is a Promissory Note Value?
Definition:
The promissory note value is the amount the note is worth at a specific point in time. Depending on context, this may mean (a) the amount due at a future date under the note’s stated interest terms (for a single lump-sum payoff), or (b) the note’s present/market value, which is typically estimated by discounting the remaining expected payments at a market yield that reflects time value of money and risk.
How to Calculate Promissory Note Value?
Example Problem:
The following example outlines the steps and information needed to calculate the Promissory Note Value.
First, determine the original principal of the note. In this example, the principal is $5,000.
Next, determine the interest rate and number of years. Assume an annual interest rate of 5% (0.05) compounded annually for 3 years, so t = 3.
Finally, calculate the value using the single-payment future value formula above:
FV = OP × (1 + IR)t
FV = $5,000 × (1 + 0.05)3
FV = $5,000 × (1.05)3 = $5,000 × 1.157625
FV ≈ $5,788.13
FAQ
What factors can affect the value of a promissory note?
The value of a promissory note can be influenced by factors such as the stated interest rate (coupon), repayment schedule, creditworthiness of the borrower, and prevailing market yields. These variables affect both expected cash flows and the rate used to discount them.
How does the interest rate impact the value of a promissory note?
If you are computing the amount due in the future for a single-payment note, a higher stated interest rate increases the future value. For resale/market pricing, higher market yields generally reduce a note’s present value (price), while a higher stated coupon (relative to the market yield) generally increases the price.
Can I sell my promissory note for its full value?
The resale value of a note depends on market yields, perceived risk, and the remaining payment schedule. Investors may discount the note’s price based on factors such as the borrower's credit profile, interest rate trends, and liquidity needs.