A Premium represents the difference between the face value and the issue price of a bond. When issue price exceeds face value, the bonds have sold at premium.
Input Variables:
IP- Issue Price
FV - Face Value
Output for the formula:
Returns the premium
Definition of Premium for Bonds
1) A bond that is trading above its par value. A bond will trade at a premium when it offers a coupon rate that is higher than prevailing interest rates. This is because investors want a higher yield, and will pay more for it.
2) A specific type of bond issued in nations such as the United Kingdom and Canada. In the U.K., premium bonds are referred to as a lottery bond issued by the British government's National Savings & Investment scheme. In Canada, the Canada Premium Bond, first introduced in 1998, offers a higher interest rate at the time of issue than a comparable Canada Savings Bond.