What does it mean if a bond is trading at a premium?

A bond that's trading at a premium means that its price is trading at a premium or higher than the face value of the bond. For example, a bond that was issued at a face value of $1,000 might trade at $1,050 or a $50 premium. Even though the bond has yet to reach maturity, it can trade in the secondary market.

What is a premium in a takeover?

The word "premium" is derived from the Latin praemium, where it meant "reward" or "prize". "At a premium" is thus meant to describe that an asset as being priced higher than it is actually worth. In the case of a takeover, for example, the acquiring company often purchases the stock of a target company at a premium to market value.

Why does an asset trade at a premium?

There are a variety of situations where an asset trades at a premium to its fundamental value for some period, but the phrase can also reveal the speaker's own personal assessment of the asset's intrinsic value — which may be the result of a cognitive or emotional bias . A premium can be contrasted with an asset trading at a discount .

What is option premium?

The option premium is higher for assets with higher price volatility in the recent past. There are two basic components to option premium. The first factor is the intrinsic value. The intrinsic value of an option is the amount of money investors would get if they exercised the option immediately.