Selling at premium

If a bond is trading at a premium, this simply means it is selling for more than its face value. Bond investments should be evaluated in the context of expected ...

What does it mean to sell at a premium?

"At a premium" is a phrase attached to situations where a current value or transactional value of an asset is trading above its fundamental or intrinsic value. For example, "Company X is trading at a premium to company Y." Or, "A commercial building was sold at a premium to its underlying value."

What is a bond selling at premium?

A premium bond is a bond trading above its face value or costs more than the face amount on the bond. A bond might trade at a premium because its interest rate is higher than the current market interest rates. The company's credit rating and the bond's credit rating can also push the bond's price higher.

Is it better to trade at a discount or premium?

Premium bonds trade above par value while discount bonds trade below it. Discount bonds can be riskier but the lower the price, the higher the potential for gains. Premium bonds can deliver higher returns with less risk, but they can be problematic if they become callable.

Why buy a bond at a premium?

A person would buy a bond at a premium (pay more than its maturity value) because the bond's stated interest rate (and therefore the bond's interest payments) will be greater than those expected by the current bond market.