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What is Bond Premium? A Comprehensive Legal Overview
Definition & meaning
A bond premium is the amount that a buyer pays for a bond that exceeds its face value, also known as par value. This typically occurs when the bond offers a higher interest rate than current market rates. The bond premium is calculated as the difference between the bond's selling price and its face amount. It's important to note that this amount does not include any accrued interest that may have accumulated since the bond was issued.
Table of content
Legal use & context
In legal practice, the concept of bond premium is primarily relevant in the areas of finance and securities law. It is commonly encountered during the buying and selling of bonds in investment transactions. Understanding bond premiums can help investors make informed decisions about their purchases. Users may find legal templates on US Legal Forms useful for drafting agreements related to bond transactions.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: If a bond has a face value of $1,000 and is sold for $1,050, the bond premium is $50.
Example 2: A bond with a face value of $500 sells for $600, resulting in a bond premium of $100.
Comparison with related terms
Term
Definition
Difference
Bond Discount
The amount by which a bond's selling price is less than its face value.
Bond premium is when the selling price is higher than the face value, while a bond discount is when it is lower.
Accrued Interest
Interest that has accumulated on a bond since its last interest payment.
Accrued interest is not included in the bond premium calculation.
Common misunderstandings
What to do if this term applies to you
If you are considering buying a bond, it is essential to understand whether you will be paying a premium. Review the bond's face value and selling price carefully. If you are unsure about the implications of a bond premium, consider consulting a financial advisor or using US Legal Forms' templates to draft relevant agreements.
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