premium

(noun)

A bonus paid in addition to normal payments.

Related Terms

Examples of premium in the following topics:

  • Bonds Issued at a Premium

    • This would make the amortization rate of the bond's premium equal to $1,000 per year.
    • When the business pays interest, it must also amortize the bond premium at that time.
    • To calculate the amortization rate of the bond premium, a company generally divides the bond premium amount by the number of interest payments that will be made during the term of the bond.
    • The company must debit the bond premium account by the amortization rate.
    • This would make the amortization rate of the bond's premium equal to $1,000 per year.

  • Amortized Cost Method

    • The accounting records show the debt at the amortized cost (face amount plus premium/less discount) and the difference between the maturity value and the cost of the bonds is amortized to the income statement over the life of the bonds.
    • The first interest payment is $1,600, but since the company paid a premium, the effective interest earned is $1,302 (net the amortization of the premium).

  • Redeeming Before Maturity

    • Redemption is made at the face value of the bond unless it occurs before maturity, in which case the bond is bought back at a premium to compensate for lost interest.
    • The issuer has the right to redeem the bond at any time, although the earlier the redemption takes place, the higher the premium usually is.
    • With some bonds, the issuer has to pay a premium, the so-called call premium.

  • Bond Valuation Method

    • The business will then need to record a "bond premium" for the difference between the amount of cash the business received and the bonds' face value.

  • Issuing Bonds

    • If a bond has a coupon interest rate that is higher than the market interest rate it is considered a premium.
    • The premium (higher interest rate) is to offset the assumed higher than average risk associated with investing in the company.

  • Redeeming at Maturity

    • For a bond sold at premium, its carrying value will decrease and equal the par value at maturity.
    • All bond discounts and premiums also appear on the balance sheet.

  • Types of Bonds

    • The exercise of the call provision normally requires the company to pay the bondholder a call premium of about USD 30 to USD 70 per USD 1,000 bond.
    • A call premium is the price paid in excess of face value that the issuer of bonds must pay to redeem (call) bonds before their maturity date.

  • Assessing Fair Value

    • Interest income includes amortization of any premium or discount inherent in the initial purchase price

  • Factors Affecting the Price of a Bond

    • While the coupon rate is generally a fixed amount, it can also be "indexed. " This means that the interest rate is calculated by taking an established rate that fluctuates over time, such as a bank's lending rate, and adding a "premium" percentage amount to determine the bond's coupon rate.

  • Valuation of Intangible Assets

    • Why would Company B pay a 50,000 premium?