Applies mainly to convertible securities. Premium over parity of a convertible bond divided by parity.
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The amount the price of a convertible bond exceeds its parity, expressed as a percentage. Convertible bonds may be traded like most bonds, and fluctuate in price like all securities. When its market value equals the value of the underlying common stock, the bond is said to have parity. When a convertible bond trades at a premium, this means that it is more expensive than the current value of the underlying. A convertible bond may trade at a premium if the issuer has a good credit rating and/or if investors believe that the price of the common stock will rise again.
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