What is the difference of the discount bonds and the premium bonds?
Bond Pricing. Most bonds are available in $1,000 denominations; $1,000 is the face value, or par -- the amount to be repaid at maturity. Bonds prices are expressed as a percentage of par: a price of 100 means that a bond costs 100 percent of the face value, or $1,000 for each $1,000 of face value.remium vs. Discount. A bond with a price below 100 is a discount bond, while price above 100 means the bond is premium. Bond prices move in the opposite direction of interest rates: When interest rates rise, bond prices fall, and vice versa. When a bond is downgraded, its price usually drops. A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market. A bond is considered a discount bond when it has a lower interest rate than the current market rate, and consequently is sold at a lower price.This interest rate, also called a coupon, is usually paid semiannually. As interest rates go up, bond prices go down.Discount bonds are similar to zero-coupon bonds, which are also sold at a discount, but the difference is that they don't pay interest. Common examples of discount bonds are U.S. Treasury bills and U.S. savings bonds.A deep-discount bond is sold at a significantly lower price than par value, usually 20% or more. bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the secondary market. A bond is considered a discount bond when it has a lower interest rate than the current market rate, and consequently is sold at a lower price. Robin Russo, CFP®. Financial Planner. When a bond is first issued, it is a standard bond – never a premium bond or a discount bond. In other words, the price you pay for a new bond (its original price) is always fixed, and is called the par value.A bond becomes “premium” or “discount” once it begins trading on the market.New bonds are sold on the “primary market” and existing bonds are sold on the “secondary market.”.n other words, the price you pay for a new bond (its original price) is always fixed, and is called the par value. A bond becomes “premium” or “discount” once it begins trading on the market. New bonds are sold on the “primary market” and existing bonds are sold on the “secondary market.”. Premium and discount refer to the price of a bond and can often mean the difference between a gain and a loss on your investment. But the correlation is not always straightforward: You can lose money in a discount bond and profit from owning a premium bond.remium vs. Discount. A bond with a price below 100 is a discount bond, while price above 100 means the bond is premium. Bond prices move in the opposite direction of interest rates: When interest rates rise, bond prices fall, and vice versa. When a bond is downgraded, its price usually drops. In the U.S. a premium bond is one that is purchased or traded at a higher price than its face value, also known as the par value. Why anyone would buy bonds at a premium when most bonds are sold at par is a function of interest rates.When interest rates decline, new bonds offer lower rates.onds are debt instruments where you, the bondholder, lend money to a company or the government in exchange for interest payments. Usually you buy a bond at face value, collect interest along the way and then get back the face value when the bond matures. Discount and premium bonds are variations on that theme. The difference is known by the terms discount on bonds payable, bond discount, or discount. To illustrate the discount on bonds payable, let's assume that in early December 2013 a corporation prepares a 9% $100,000 bond dated January 1, 2014.he account Discount on Bonds Payable (or Bond Discount or Unamortized Bond Discount) is a contra liability account since it will have a debit balance. Discount on Bonds Payable will always appear on the balance sheet with the account Bonds Payable. For example, an underwriter that purchases a bond issue at a discount of 1/2% (purchase price of 99.5%) does not necessarily obtain a 1/2% fee. The compensation will be more than 1/2% if the bonds are sold at a premium (a price higher than 100%).or example, an underwriter that purchases a bond issue at a discount of 1/2% (purchase price of 99.5%) does not necessarily obtain a 1/2% fee. The compensation will be more than 1/2% if the bonds are sold at a premium (a price higher than 100%). Discount Vs. It's a wide world of bonds, and they are not all created equal. Discount and premium bonds are two types, and they are quite distinct from the average corporate or government bond. What makes them different is that they do not trade at face value, unlike most other types of bonds.onds are debt instruments where you, the bondholder, lend money to a company or the government in exchange for interest payments. Usually you buy a bond at face value, collect interest along the way and then get back the face value when the bond matures. Discount and premium bonds are variations on that theme. Premium vs. Discount. A bond with a price below 100 is a discount bond, while price above 100 means the bond is premium. Bond prices move in the opposite direction of interest rates: When interest rates rise, bond prices fall, and vice versa. When a bond is downgraded, its price usually drops.remium vs. Discount. A bond with a price below 100 is a discount bond, while price above 100 means the bond is premium. Bond prices move in the opposite direction of interest rates: When interest rates rise, bond prices fall, and vice versa. When a bond is downgraded, its price usually drops. Bonds are debt instruments where you, the bondholder, lend money to a company or the government in exchange for interest payments. Usually you buy a bond at face value, collect interest along the way and then get back the face value when the bond matures. Discount and premium bonds are variations on that theme.onds are debt instruments where you, the bondholder, lend money to a company or the government in exchange for interest payments. Usually you buy a bond at face value, collect interest along the way and then get back the face value when the bond matures. Discount and premium bonds are variations on that theme.
A bond with a price below 100 is a discount bond, while price above 100 means the bond is premium.