Why are some bonds sold with a premium some at par value and some at a discount?

Why a Bond Trades at a Premium or a Discount A bond trades at a premium when its coupon rate is higher than prevailing interest rates. A bond trades at a discount when its coupon rate is lower than prevailing interest rates.

Why some bonds sell at a premium over par value which other bonds sell at discount?

Also, as rates rise, investors demand a higher yield from the bonds they consider buying. If they expect rates to continue to rise in the future they don’t want a fixed-rate bond at current yields. As a result, the secondary market price of older, lower-yielding bonds fall. So, those bonds sell at a discount.

What causes bonds to sell for a premium compared to face value?

What causes bonds to sell for a premium compared to face value? The bonds have a higher than market coupon rate. The current yield tends to overstate a bond’s total return when the bond sells for a premium because: The bond’s price will decline each year.

Why do certain bonds sell for higher prices?

The three primary influences on bond pricing on the open market are supply and demand, term to maturity, and credit quality. Bonds that are priced lower have higher yields.

Why do some bonds sell at par?

A par bond is a bond that sells at its exact face value. This typically means that a bond sells for $1,000, since this is the face value of most bonds. Consequently, investors will pay less than the face value of the bond in order to achieve the effective 7\% interest rate that they want.

When a bond is sold at a premium the carrying value will?

When a bond is issued at a premium, the carrying value is higher than the face value of the bond. When a bond is issued at a discount, the carrying value is less than the face value of the bond. When a bond is issued at par, the carrying value is equal to the face value of the bond.

What does the fact that a bond sells at a discount or at a premium tell you about the relationship between RD and the bond’s coupon rate?

When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of the bond is either above or below its par value. Bonds can be sold for more and less than their par values because of changing interest rates.

What is a bond selling at premium at par value and at discount?

For example, a bond with a par value of $1,000 is selling at a premium when it can be bought for more than $1,000 and is selling at a discount when it can be bought for less than $1,000. Bonds can be sold for more and less than their par values because of changing interest rates.

When a bond is sold at a premium the carrying value will each period that the premium is amortized?

When a bond is sold at a premium, the carrying value will decrease each period that the premium is amortized. A company issues $80,000 of 6\%, 5-year bonds dated January 1 that pay interest semiannually on June 30 and December 31 each year.

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