How Do You Spell PREMIUM BOND?
Pronunciation: [pɹˈiːmi͡əm bˈɒnd] (IPA) 
Pronunciation: [pɹˈiːmi͡əm bˈɒnd] (IPA)
A premium bond refers to a type of bond that offers a higher interest rate or coupon payment compared to other bonds in the market, due to its perceived quality or attractiveness to investors. It is a fixed-income security that is issued by the government or a corporation to finance its operations or projects.
The term "premium" in premium bond signifies that the bond is sold at a higher price above its face value or par value. Typically, premium bonds are purchased at a premium because they offer a higher coupon rate than the prevailing interest rates or because they possess unique characteristics that make them more desirable to investors.
Investors are willing to pay a premium for these bonds because they are seen as having lower risk or better returns compared to other available investments. Furthermore, premium bonds are often associated with a high credit rating, indicating a lower probability of default by the issuer. This perception results in a higher demand for such bonds, leading to a higher price in the market.
The premium paid by investors at the time of purchase is amortized over time, resulting in the bond's price converging toward its face value at maturity. This means that the bondholder will eventually receive the full face value at the end of the bond's term, regardless of the premium paid.
In summary, a premium bond is a fixed-income security that offers a higher interest rate than similar bonds due to its reputation, quality, or unique features, attracting investors who are willing to pay a premium for them.
The word "premium" in the context of "premium bond" originates from the Latin word "praemium", meaning "reward" or "prize". The term was typically used to refer to an additional payment made for a special benefit or higher quality. In the case of "premium bonds", the word "premium" denotes the additional interest or chance of winning a cash prize that investors receive in relation to other types of bonds. The concept of "premium bonds" was first introduced in the United Kingdom in 1956 by the government-backed savings institution known as National Savings and Investments (NS&I).
