Thursday, October 3, 2013

Promissory Note




Promissory note is written unconditional promise which is signed by the maker to pay certain person or to the bearer of the instrument, a certain sum of money after certain period of time.

A promissory note is a legal instrument (more particularly, a financial instrument), in which one party (the maker or issuer) promises in writing to pay a determinate sum of money to the other (the payee), either at a fixed or determinable future time or on demand of the payee, under specific terms. If the promissory note is unconditional and readily salable, it is called a negotiable instrument.

A written, signed, unconditional promise to pay a certain amount of money on demand at a specified time. A written promise to pay money that is often used as a means to borrow funds or take out a loan.

The individual who promises to pay is the maker, and the person to whom payment is promised is called the payee or holder. If signed by the maker, a promissory note is a negotiable instrument. It contains an unconditional promise to pay a certain sum to the order of a specifically named person or to bearer—that is, to any individual presenting the note. A promissory note can be either payable on demand or at a specific time.

Certain types of promissory notes, such as corporate bonds or retail installment loans, can be sold at a discount—an amount below their face value. The notes can be subsequently redeemed on the date of maturity for the entire face amount or prior to the due date for an amount less than the face value. The purchaser of a discounted promissory note often receives interest in addition to the appreciated difference in the price when the note is held to maturity.

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