Bonds at a Premium or Discount

It takes a lot of time to get a bond ready to be issued. Because of that, it's nearly impossible to know what interest rate a bond should offer.

Often the market interest rate is higher or lower than it was when the bond offering was originally planned.

For this reason, bonds are often sold at a:

• Premium - A bond is sold for more than its face value when the market rate is lower.
• Discount - A bond is sold for less than its face value when the market rate is higher.

Often bonds will be assigned a number representing how much of a percent discount or premium its price.

For instance, a bond at 90 is sold at a 10% discount, and a bond at 110 is sold a 10 percent premium.

Buyers and sellers in the bond market need to be able to calculate what a premium or discount should look like in order to make a deal attractive to both parties.