premium

Premium

(1) A bond sold above its par value. (2) The price of an option contract; also, in futures trading, the amount by which the futures price exceeds the price of the spot commodity. (3) For convertibles, amount by which the price of a convertible exceeds parity, and is usually expressed as a percentage. Suppose a stock is trading at $45, and the bond is convertible at a $50 stock price and the convertible bond trading at 105. A similar bond without the conversion feature trades at $90. In this case, the premium is $15, or 16.66%=(105-90)/90. If the premium is high, the bond trades like any fixed income bond; if low, like a stock. See: Gross parity, net parity. (4) For futures, excess of fair value of future over the spot index, which in theory will equal the Treasury bill yield for the period to expiration minus the expected dividend yield until the future's expiration. (5) For options, price of an option in the open market (sometimes refers to the portion of the price that exceeds parity). (6) For straight equity, price higher than that of the last sale or inside market. Related: Inverted market premium payback period. Also called break-even time; the time it takes to recover the premium per share of a convertible security.

Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Premium

1. The price by which a security, especially but not necessarily a bond, exceeds its face value.

2. The price of an option contract.

3. A payment that a policyholder makes, usually monthly, in order to be covered by an insurance policy.

4. The extra return that an investor expects to make from a position in exchange for accepting extra risk.

Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

premium

1. The price at which an option trades. The size of the premium is affected by various factors including the time to expiration, interest rates, strike price, and the price and price volatility of the underlying asset. Also called option premium.

2. The amount by which a bond sells above its face value.

3. The excess by which a warrant trades above its theoretical value.

4. The amount by which a convertible bond sells above the price at which the same bond without the convertible feature would sell.

Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.

Premium.

A premium is the purchase price of an insurance policy or an annuity contract. You may pay the premium as a single lump sum, in regular monthly or quarterly installments, or in some cases on a flexible schedule over the term of the policy or contract.

When you pay over time, the premium may be fixed for the life of the policy, assuming the coverage remains the same. That's the case with many permanent life insurance policies.

With other types of coverage, the premium changes as you grow older or as costs for the issuing company increase.

Used in another sense, the term premium refers to the amount above face value that you pay to buy, or you receive from selling, an investment. For example, a corporate bond with a par value of $1,000 with a market price of $1,050 is selling at a $50 premium.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.

premium

1. an addition to the published LIST PRICE of a product charged by a supplier to a customer. The premium could be charged for guaranteeing rapid delivery of the product, or could reflect the temporary scarcity of the product. A ‘premium price’ over similar products might be charged by a supplier who is able to convince buyers that his product is superior in some respect to competitors' offerings.
2. the purchase of a BOND for more than its nominal value. The price which people are prepared to pay for a bond can be more than its nominal value if the nominal rate of interest on that bond exceeds current market interest rates.
3. the sale of new STOCKS and SHARES at an enhanced price. In the UK this involves the issue of a new share at a price above its nominal value. Where shares have no nominal value it involves the sale of new shares above their current market price.
4. the rating of a particular company's shares at a price above the average market price of the shares of other companies operating in the same sector, the ‘premium’ reflecting investors' general optimism that this company is likely to perform much better than the others.
5. the amount by which a foreign currency's spot exchange rate stands above its ‘official’ par value under a FIXED EXCHANGE RATE system which allows some degree of short-term fluctuation either side of the par value.
6. the annual payment made to an INSURANCE COMPANY by persons or firms taking out an insurance policy.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson

premium

1. an addition to the published LIST PRICE of a good or service charged by a supplier to customers. The premium could be charged for express delivery of the product or could reflect the temporary scarcity of the product. A ‘premium price’ for a product over similar products might be charged by a supplier who is able to convince buyers that his product is superior in some respect to competitors’ offerings (see PRODUCT DIFFERENTIATION).
2. the sale of new STOCKS and SHARES at an enhanced price. In the UK this involves the issue of a new share at a price above its nominal value. In other countries where shares have no nominal value it involves the sale of new shares above their current market price.
3. the purchase of a particular company's issued stock or share at a price above the average market price of those of other companies operating in the same area. The price is higher, reflecting investors’ optimism about that company's prospects.
4. a general rise in the prices of all stocks and shares to higher levels in anticipation of an upturn in the economy.
5. the purchase of a BOND for more than its nominal value. The price that people are prepared to pay for a bond can be more than its nominal value if the nominal rate of interest on that bond exceeds current market interest rates.
6. the extent to which a foreign currency's market EXCHANGE RATE rises above its official exchange rate under a FIXED EXCHANGE RATE SYSTEM.
7. the annual payment made to an INSURANCE COMPANY for an insurance policy. See also SPECULATIVE DEMAND FOR MONEY.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005

premium

(1) An amount paid for an insurance policy.(2) An advance payment of several months or even years of rent to a landlord.(3) The value of a mortgage in excess of its face value.For example,if a $100,000 mortgage cannot be prepaid and is bearing interest at 10 percent when prevailing interest rates are only 6 percent, an investor might pay more than $100,000 to buy the mortgage because of the high return.

The Complete Real Estate Encyclopedia by Denise L. Evans, JD & O. William Evans, JD. Copyright © 2007 by The McGraw-Hill Companies, Inc.