Which term describes a bond that sells for more than its face value?

Which term describes a bond that sells for more than its face value?

• A. Discount
• B. Open-End Fund
• C. Liquidity
• D. Premium

Answer: (D)

Bond pricing relative to face value: When a bond sells for more than its face value, it’s trading at a premium. This happens because the bond’s coupon payments are relatively high compared with current market rates, making the bond more attractive to investors who are willing to pay above par to receive those larger coupons. The face value is what’s repaid at maturity, so as time passes toward that date, the price tends to move down toward the face value. The other terms don’t describe this situation: a discount means price below par; liquidity is about how easily an asset can be sold for cash; an open-end fund is a type of mutual fund, not a single bond’s pricing.

Bond pricing relative to face value: When a bond sells for more than its face value, it’s trading at a premium. This happens because the bond’s coupon payments are relatively high compared with current market rates, making the bond more attractive to investors who are willing to pay above par to receive those larger coupons. The face value is what’s repaid at maturity, so as time passes toward that date, the price tends to move down toward the face value. The other terms don’t describe this situation: a discount means price below par; liquidity is about how easily an asset can be sold for cash; an open-end fund is a type of mutual fund, not a single bond’s pricing.