premium bond (redirected from Premium bonds)

Premium Bond

A bond that is priced higher than its par value.

Notes:

If a bond's price is higher than its par value it is selling at a premium this occurs because the interest rate on the bond is higher than the prevailing rates in the market, making the premium bond worth more than a bond paying a lower rate. For example, if a bond with a 5% coupon were selling at par ($1000 let's say), it would be worth less than the bond paying 7%. Therefore the bond paying 7% would have to be priced higher than par, thus equalizing the attractiveness of the two bonds.

See also: Bond, Discount Bond, Face Value, Interest Rate, Original Issue Discount - OID, Par Value, Yield To Maturity - YTM

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Premium bond

A bond that is selling for more than its par value.

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premium bond

A bond that sells at a price above its par value. An investor must be careful about purchasing a bond that is selling at a premium because of the possibility of a call by the bond's issuer for sinking fund requirements or for refunding. Except for convertible bonds, the size of a bond's premium usually can be expected to decline as the bond approaches maturity, at which time it will be paid off at par.