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Premium

• (1) Amount paid for a bond above the par value. (2) The price of an option contract; also, in futures trading, the amount the futures price exceeds the price of the spot commodity. Related: inverted market premium payback period. Also called break-even time, the time it takes to recover the premium per share of a convertible security.

• The difference between the par value of a bond and the cost of the bond, when the cost is above par.

• The amount by which a bond sells at a value that is greater than its par, or face, value.

• (1) The amount by which the price at which an issue is trading exceeds the issue's par value. (2) The amount that must be paid in excess of par to call or refund an issue before maturity. (3) In money market parlance, the fact that a particular bank's CDs trade at a rate higher than others of its class, or that a bank has to pay up to acquire funds.

• The fee paid to an insurance company in exchange for protection against a specified risk (for an insurance policy); the amount by which the sale price of a bond exceeds its face value.

• (1) The amount of cash that an option buyer pays to an option seller. (2) The difference between the higher price paid for a security and the security's face amount at issue. See also: Discount.

• Is used several ways. It can refer to the value of an option, the amount that a credit instrument is trading over par, or the price differential due to quality or location characteristics for commodities.

 
 Embedded terms in definition
 Bond
Call
Cash
Class
Commodity
Contract
Convertible security
Convertible
Credit
Discount
Exchange
Face value
Futures price
Futures
Inverted market
Issue
Its
Market
Maturity
Money market
Option seller
Option
Par value
Par
Pay up
Payback period
Payback
Risk
Sale
Security
Share
Time
Trade
Trading
 
 Referenced Terms
 All in cost: Total costs, explicit and implicit.Total costs, explicit and other. Example: The all-in cost to a bank of CD money is the explicit rate of interest it pays on that deposit plus the FDIC Premium it must pay on the deposit plus the hidden cost it incurs because it must hold some portion of that deposit in a non-interest-bearing reserve account at the Fed.

 Amortization: The systematic expensing of a portion of the cost of a fixed asset against sales revenue.(1) The paying off of debt in regular installments over a period of time. (2) The deduction of certain capital expenses over a specific period of time.The repayment of a loan by installments.Is the periodic pay down of principal. This is a common feature of most mortgages. Amortize also refers to the accounting write down or reduction in an intangible asset. This creates a charge against income. Amortization can also refer to the reduction in the cost basis of a bond purchased at a Premium to par. Sometimes, amortization is used as a synonym for depreciation or other write down of an asset or liability. In the later capacity it tends to apply to intangible assets. See Interest Impact on Installment to Amortize or Amortization.The process of reducing a debt through installment payments of principal and interest.

 Amortize: In portfolio accounting, periodic charges made against interest income on Premium bonds in anticipation of receipt of the call price at call or of par value at maturity. In the context of a loan, amortization means the annuity payments that pay off the loan in full.

 Bank notes: Unsecured notes issued by a bank in the form of an MTN. No FDIC Premium is paid by the issuing bank.

 Break even time: Related: Premium payback period.

 
 Related Terms
 Call premium
Conversion premium
Default premium
Forward premium
Liquidity premium
Market premium convertible securities
Option premium
Premium bond
Premium for bonds
Risk premium
Risk premium approach
Single premium deferred annuity
Tender offer premium
Time premium
Warrant premium

<< Preliminary prospectus Premium bond >>

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