Premium bond
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
A bond trading above its face value.
Premium bond in plain English
A bond is basically an IOU: you lend a company money, and it promises to pay you fixed interest each year and return the face amount (say $1,000) at the end. A bond is a "premium" bond when people will pay MORE than that $1,000 face value to own it — like paying above sticker price for a concert ticket everyone wants. Why would anyone overpay? Because that particular bond's fixed interest payments are juicier than what new bonds are offering, so buyers bid the price up until the deal is only as good as everything else. The extra you pay gets quietly erased over time as you only get the $1,000 face value back at the end, not the higher price you paid.
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