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For new investors the process of buying bonds can be complex as it involves various terminologies and buying scenarios. Today we will discuss buying bonds at a premium versus a discount. Let’s start at the beginning. When a bond is issued it is available for purchase at its face value, which is the amount of money the issuer promises to repay bondholders at maturity. The face value of a bond is fixed and is also known as the par value.

Buying Bonds at Premium

Once the bond is available in the market it begins trading at a premium or discount, depending on the market interest rate and bond coupon rate. When you buy a bond at a premium in the secondary market you pay a price higher than its par value (original price). Bonds trade at a premium compared to their par value when the coupon offered on the bond is higher than the prevailing market interest rate. As a result, potential investors would be willing to pay a higher amount to secure a higher interest rate.

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https://www.jamaicaobserver.com/business/buying-bonds-premium-vs-discount/