Bond Basics
This type of bond sells for more than its face value because its interest rate is higher than the market rate
Premium Bond
This is the term for the amount printed on a bond, which premium bonds sell above
face value (or par value)
This is the term for the interest a bond pays each year
the coupon rate
A premium bond usually has this kind of coupon rate compared to current market rates
higher coupon rate
Investors pay this for a premium bond: more or less than face value?
More
This happens to a premium bond’s price as it gets closer to maturity
It moves towards face value
This happens in the market that causes a bond with a high coupon rate to trade at a premium
A drop in market interest rates
If a bond has a face value of $750 but sells for $780, it is trading at this
$30 premium
A bond with a 7% coupon trades at a premium when market rates fall to this type of level
a lower level
This is the main reason investors are willing to pay extra for a premium bond
higher interest income
This type of yield may be lower on a premium bond even though the coupon rate is high
yield to maturity
If a bond sells for $1,120 but has a face value of $1,000, this percentage of the price represents the premium
What is 12%
Premium bonds become more attractive when this happens to the issuer’s credit rating
An improvement in credit rating
This is the term for the difference between a bond’s market price and its face value
the premium (or discount)
This happens to a premium bond’s yield to maturity when market interest rates rise
it decreases