A premium on bonds occurs when bonds carry a contract rate greater than the market rate at issuance.

Question

Quizplus · Accepted Answer

A premium on bonds occurs because investors are willing to pay more for the bonds than the face value, since they provide a higher interest rate than the prevailing market rate. This results in the bond being issued at a higher price than its face value, and the difference between the issue price and the face value is known as the premium.

A Premium on Bonds Occurs When Bonds Carry a Contract