4.4 Negotiable Instruments

A negotiable instrument is a document guaranteeing the payment of a specific amount of money, either on demand or at a set time, with the payer named on the document. It is a document contemplated by or consisting of a contract, which promises the payment of money without condition, which may be paid  either on demand or at a future date. Examples: promissory notes, bills of exchange, banknotes, and cheques.

From the figure above, the total of principal and interest is called the maturity value of the note. Given the term of the note is in months, ordinary simple interest is used to calculate the maturity value. An important feature of a promissory note is that it is negotiable. Negotiable, that is, it can be transferred to another payee by the endorsement of the present payee.