What term refers to the price of a bond above its face value?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Study for the State Finance Challenge Test. Prepare with quizzes and multiple choice questions, each offering hints and explanations. Enhance your understanding and get ready for success!

Multiple Choice

What term refers to the price of a bond above its face value?

Explanation:
When a bond trades for more than its face value, the term used is a premium. This occurs because the bond’s coupon payments are higher than current market rates, making the bond more valuable to investors. Buyers are willing to pay above the par value to secure those higher coupon payments, so the price rises above the face value (par). The face value is what’s repaid at maturity, typically 1,000 per bond. If market rates were higher than the bond’s coupon, the price would fall below par and trade at a discount. The other options refer to insurance or a different kind of loan, not bond pricing.

When a bond trades for more than its face value, the term used is a premium. This occurs because the bond’s coupon payments are higher than current market rates, making the bond more valuable to investors. Buyers are willing to pay above the par value to secure those higher coupon payments, so the price rises above the face value (par). The face value is what’s repaid at maturity, typically 1,000 per bond. If market rates were higher than the bond’s coupon, the price would fall below par and trade at a discount. The other options refer to insurance or a different kind of loan, not bond pricing.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy