Debt today, equity on a defined trigger.
A convertible note is debt that may convert into equity under specified conditions. Interest generally increases the balance outstanding. Whether that interest converts, and at what price, depends on the note agreement.
This model accrues simple interest and converts the full balance at a discounted financing price. It separates the amount owed from the price paid for shares, making the two drivers of conversion visible.
The formula, made clear.
- Accrued interest
- Principal × annual interest rate × time in years.
- Discounted share price
- Round share price × (1 − conversion discount).
Put the numbers in context.
A $500,000.00 note at 8% simple annual interest accrues $60,000.00 over 18 months. At a 20% discount to a $10.00 share price, $560,000.00 converts at $8.00 into 70,000 shares.
| Input | Example value |
|---|---|
| Note principal | $500,000.00 |
| Annual interest rate | 8% |
| Time outstanding | 18 months |
| Conversion discount | 20% |
| Round share price | $10.00 |
| Shares issued on conversion | 70,000 |
What this calculation assumes
Discount-only note. Principal and simple interest both convert at the same price. No cap, fees, repayment, maturity settlement, compounding or day-count convention.
What to consider next.
Check whether the note has a valuation cap and whether interest converts at the same price as principal.
How we approach financial models →