Premium
The amount an asset trades above its par or intrinsic value.
Quick answer
A premium is an asset trading above its par or intrinsic value.
Definition
A premium is when an asset trades above its par or intrinsic value, meaning you pay more than it is notionally worth. It can reflect quality, scarcity or market sentiment. It is the counterpart of a discount and shows up on bonds, funds and some products.
How It Works
- It is the opposite of a discount
- It can signal quality or overvaluation
- Bonds and funds trade at premiums
Trading Tips
1
Ask why it carries a premium before paying it
2
Compare it to the discount side of the same asset
3
Read the reason behind the price
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