State Finance Challenge Practice Test

When a bond trades for more than its face value, the term used is a premium. This occurs because the bond’s coupon payments are higher than current market rates, making the bond more valuable to investors. Buyers are willing to pay above the par value to secure those higher coupon payments, so the price rises above the face value (par). The face value is what’s repaid at maturity, typically 1,000 per bond. If market rates were higher than the bond’s coupon, the price would fall below par and trade at a discount. The other options refer to insurance or a different kind of loan, not bond pricing.