Definition of Premium bond:
A premium bond is a bond trading above its face value or in other words; it costs more than the face amount on the bond. A bond might trade at a premium because its interest rate is higher than current rates in the market.
Bond with interest rate higher than the market interest rate and, therefore, selling at a price above its par value.
A bond that's trading at a premium means that its price is trading at a premium or higher than the face value of the bond. For example, a bond that was issued at a face value of $1,000 might trade at $1,050 or a $50 premium. Even though the bond has yet to reach maturity, it can trade in the secondary market. In other words, investors can buy and sell a 10-year bond before the bond matures in ten years. If the bond is held until maturity, the investor receives the face value amount or $1,000 as in our example above.
How to use Premium bond in a sentence?
- A bond might trade at a premium because its interest rate is higher than the current market interest rates.
- A premium bond is a bond trading above its face value or costs more than the face amount on the bond.
- Investors are willing to pay more for a creditworthy bond from the financially viable issuer.
- The company's credit rating and the bond's credit rating can also push the bond's price higher.
Meaning of Premium bond & Premium bond Definition