A bond has a price of $1,054.32 and a face value of $1,000. Which term is used to describe the selling price of this bond?

Rationale

A bond selling for more than its face value is referred to as a premium.

When a bond's price exceeds its face value, it is classified as a premium bond. In this case, the bond is priced at $1,054.32, which is higher than its $1,000 face value, indicating that investors are willing to pay more for it, often due to lower interest rates or other favorable terms.

A (Par) YOUR ANSWER

Par value, or face value, refers to the nominal value of a bond as stated on the certificate. A bond sold at par is priced exactly at its face value, which is not the case here since the bond is selling for $1,054.32. Thus, this option does not apply to the stated bond price.

B (Discount) YOUR ANSWER

A bond sold at a discount is priced below its face value, meaning the selling price is lower than $1,000. Since the bond in question is priced above its face value, this term is inappropriate in this context and does not reflect the bond's current selling price.

C (Premium) CORRECT

When a bond is sold for more than its face value, it is termed a premium. In this scenario, the bond's price of $1,054.32 exceeds its $1,000 face value, confirming it is indeed a premium bond. This situation often arises when market interest rates are lower than the bond's coupon rate, making the bond more attractive to investors.

D (Coupon) YOUR ANSWER

The coupon refers to the interest payment made to bondholders, typically expressed as a percentage of the face value. While the coupon is a critical aspect of bond investing, it does not describe the bond's selling price. Thus, this term is irrelevant to the price comparison provided.

Conclusion

A bond priced above its face value is classified as a premium, which is the case for the bond selling at $1,054.32 compared to its $1,000 face value. Understanding bond pricing involves recognizing the distinctions between par, discount, and premium, as well as the role of the coupon in determining the bond's attractiveness to investors.

A bond has a price of $1,054.32 and a face value of $1,000. Which term is used to describe the selling price of this bond?

A bond selling for more than its face value is referred to as a premium.

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