A bond selling at premium is trading above its par value. It’s considered premium when it offers a coupon rate higher than its prevailing interest rates
Now that bond calculators have been covered…let’s learn about bond premiums and bond discounts.
What is a bond premium?
A bond selling at premium is a bond that is trading above its par value. A bond is considered to be trading at premium when it offers a coupon rate higher than its prevailing interest rates. This is because investors want a higher yield and will pay more for it.
Oppositely, a bond is selling at a discount when it can be bought for less than its par value.
What is a bond discount?
A bond discount is the amount by which the market price of a bond is lower than its par value (typically $1,000) due at maturity. Bond prices are quoted as a percentage of face value, so a price of 95.00 means that the bond is selling for 95% of its face value of $1,000.00 and the bond discount is 5%.
A bond discount will enhance the yield to maturity of the bond. A bond premium will reduce its yield. The size of the premium will decline as the bond approaches maturity.
Keep in mind that you can’t determine whether or not a bond is a good investment solely based on whether it’s selling at a premium or a discount. Many other factors must be taken into account. To learn more about bonds, check out the free course on Investing in Different Markets!
THE 3 BEST TOOLS FOR BEGINNER INVESTORS
Updated December 25, 2022: At WallStreetSurvivor, our passion is helping you learn to invest in the stock market the RIGHT WAY! As part of our commitment to you, we are constantly evaluating all types of financial tools from stock picking newsletters to brokerage apps to stock screeners and more. Here are our favorites:
1. BEST SOURCE OF STOCK PICKS FOR THE LAST 5 YEARS
We have been tracking ALL of the Motley Fool stock picks since January 2016. That's over 5 years and 120 stock picks. Take a look at their stock picks' performance for the last 5 years:
- Average return of their 120 picks from 2016 to 2020 is 233%
- That beats the SP500's 88%
- 84% of their picks are up
- 57 of those 120 stocks have doubled
Now, no one can guarantee that their next picks will be as strong, but our 5 years of experience has been super profitable as you can see. They do pick some losers, but the key for investors is to invest equal dollar amounts in all of their picks. So if you have $1,000 to invest in the market each month, buy $500 of each of their 2 monthly stock picks.
Normally the Motley Fool service is $199 per year but they are currently offering it at their lowest price ever: Just $79 for 12 months..
CLICK HERE to get the next Motley Fool Stock Pick
2. BEST STOCK BROKERAGE ACCOUNT
Robinhood was the first brokerage site to NOT charge commissions when they opened in 2013. They just past 10,000,000 accounts and to celebrate they are offering one free share of stock (value up to $200) when you open a new account. In addition, they will give you another free share of stock (up to $250) for each friend that you refer, max 3 friends a year.
Here's the details: You must click on a special promo link to open your new Robinhood account. Then when you fund your account with at least $10, you will receive one stock valued between $5 and $200. Then, you will get a link to share with your friends. Every time one of your friends opens an account, you will receive another free stock valued between $5 and $200.
3. FIVE STOCKS LIKELY TO DOUBLE
ZACKS Investment Research just released their list of 5 Stocks Likely to Double. ZACKS has been around since 1978 and their top rated stocks have an average gain of 25.35% per year over the last 30+ years. Best of all, you can get this list of 5 stocks for FREE by CLICKING HERE.
PRICE DROP: Get 12 months of Motley Fool stock picks and save $120. New Subscribers can try the service now for just $79.