Which is better discount bond or premium bond?
Hereof, why do bonds sell at a premium or discount?
Why a Bond Trades at a Premium or a Discount A bond trades at a premium when its coupon rate is higher than prevailing interest rates. A bond trades at a discount when its coupon rate is lower than prevailing interest rates.
Beside above, should I buy bonds when interest rates are falling? If interest rates are falling, the bond fund must purchase new bonds at those lower rates. By comparison, while individual bonds may have the same market volatility as bond funds, as an individual bond approaches maturity its price will move closer to its face value and its volatility will decrease.
Thereof, why would you buy a bond at premium?
A person would buy a bond at a premium (pay more than its maturity value) because the bond's stated interest rate (and therefore its interest payments) are greater than those expected by the current bond market. It is also possible that a bond investor will have no choice. In short, the bond market is very efficient.
What is the effective interest rate on premium bonds?
The state-backed institution, which has a duty to balance the needs of savers, taxpayers and the wider market, will change the chance of a single Premium Bond winning a prize from 24,500/1 to 26,000/1. The effective annual interest rate on the deals will fall from 1.4 per cent to 1.3 per cent.