Economics Bonds Questions
The difference between a discount bond and a premium bond lies in their respective prices in relation to their face value.
A discount bond is a bond that is sold at a price below its face value. This means that the bondholder pays less than the face value of the bond when purchasing it. The discount is essentially the difference between the purchase price and the face value, and it represents the interest earned by the bondholder upon maturity.
On the other hand, a premium bond is a bond that is sold at a price above its face value. This means that the bondholder pays more than the face value of the bond when purchasing it. The premium is the difference between the purchase price and the face value, and it represents the additional cost incurred by the bondholder.
In summary, a discount bond is sold at a price below its face value, while a premium bond is sold at a price above its face value.