Course Outline
Join PRO

Why would someone buy a bond at a premium?

Author:
Harold Averkamp, CPA, MBA

Definition of Bond Premium

Bond premium or premium on bonds occurs when the bond’s actual interest payments are greater than the interest payments expected by the market. The amount of the bond premium = (actual future interest payments + actual maturity amount) discounted by the market interest rate at the time of the bond sale.

Example of a Bond Premium

A person would buy a bond at a premium (pay more than its maturity value) because the bond’s stated interest rate (and therefore the bond’s interest payments) will be greater than those expected by the current bond market.

It is also possible that a bond investor will have no choice. For example, if the investor wants to purchase a bond with a high rating that matures in 8 years, perhaps only one bond will be available. If its stated interest rate is greater than the market interest rate on the day of the transaction, the investor either buys the bond at a premium or doesn’t buy a bond.

You will find another example of bond premium at https://www.accountingcoach.com/blog/what-is-premium-on-bonds-payable

Join PRO to Track Progress
Must-Watch Video

Learn How to Advance Your Accounting and Bookkeeping Career

  • Perform better at your current job
  • Refresh your skills to re-enter the workforce
  • Pass your accounting class
  • Understand your small business finances
Watch the Video

Join PRO or PRO Plus and Get Lifetime Access to Our Premium Materials

Read all 2,645 reviews

Features

PRO

PRO Plus

Features
Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Word Scrambles
Crosswords
Bookkeeping Video Training
Financial Statements Video Training
Flashcards
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Business Forms
All PDF Files
Progress Tracking
Earn Badges and Points
Certificate - Debits and Credits
Certificate - Adjusting Entries
Certificate - Financial Statements
Certificate - Balance Sheet
Certificate - Income Statement
Certificate - Cash Flow Statement
Certificate - Working Capital
Certificate - Financial Ratios
Certificate - Bank Reconciliation
Certificate - Payroll Accounting

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Certificates of
Achievement

Certificates of Achievement

We now offer 10 Certificates of Achievement for Introductory Accounting and Bookkeeping:

  • Debits and Credits
  • Adjusting Entries
  • Financial Statements
  • Balance Sheet
  • Income Statement
  • Cash Flow Statement
  • Working Capital and Liquidity
  • Financial Ratios
  • Bank Reconciliation
  • Payroll Accounting
Badges and Points
  • Work towards and earn 30 badges
  • Earn points as you work towards completing our course
View PRO Plus Features
Course Outline
Take the Tour Join Pro Upgrade to Pro Plus