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LSDefine
Simple English definitions for legal terms
bond premium
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A quick definition of bond premium:
A bond premium is an extra amount of money paid for a bond that is higher than its face value. It is the opposite of a bond discount. This premium is paid because the bond has a higher interest rate than the current market rate, making it more valuable. It is like paying extra for a toy that is in high demand. The bond premium is added to the face value of the bond to determine the total amount that will be paid back to the bondholder at maturity.
A more thorough explanation:
A bond premium is the amount by which a bond's market value exceeds its face value. For example, if a bond has a face value of $1000 but is trading in the market for $1100, then the bond premium is $100. This premium is paid by the bond buyer to the bond issuer and represents the additional amount the buyer is willing to pay for the bond's higher interest rate or other favorable terms.
Another example of a premium is an insurance premium, which is the periodic payment required to keep an insurance policy in effect. For instance, if you pay $1000 per year for car insurance, then that is your insurance premium.