The premium or agio (from Greek: allag = exchange) for securities (debt securities) such as bonds is the amount by which the security price (issue price or market price) exceeds the nominal value (par value or stated value). The premium is typically expressed as a percentage (of par value or principal amount). Bond or investment certificates may be issued, or be trading, at a premium to reflect specific realities such as market circumstances or an issuer’s will to compensate potential investors, etc.
For example, a bond with a par value of $1,000 would sell for a $100 premium (bond premium) when its market price is %1,100. In which case, it is known as a premium bond.
In a corresponding context, premium refers to the amount by which the redemption price to an debt security issuer is more than the par value of the security when it is called (on redemption).
The premium is also used in warrant valuation. If an investor exercises the embedded right to purchase the underlying (e. g., a stock), the premium/ agio represents the estimated additional charges/ surcharges that would arise over and above price paid for the direct purchase of an underlying at the market.
In multiple contexts, premium has varying meanings. See: premium (derivatives), premium (insurance), premium (stock trading), premium (mutual funds).
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