[pree-mee-uh
m] 
| 1. | a prize, bonus, or award given as an inducement, as to purchase products, enter competitions initiated by business interests, etc. |
| 2. | a bonus, gift, or sum additional to price, wages, interest, or the like. |
| 3. | Insurance. the amount paid or to be paid by the policyholder for coverage under the contract, usually in periodic installments. |
| 4. | Economics. the excess value of one form of money over another of the same nominal value. |
| 5. | a sum above the nominal or par value of a thing. |
| 6. | the amount paid to the lender of stock by the borrower, typically a short seller. |
| 7. | the amount the buyer of a call or put option pays to the seller, quoted in dollars per share of stock. |
| 8. | a fee paid for instruction in a trade or profession. |
| 9. | a sum additional to the interest paid for the loan of money. |
| 10. | of exceptional quality or greater value than others of its kind; superior: a wine made of premium grapes. |
| 11. | of higher price or cost. |
| 12. | of or pertaining to premiums: to work in premium sales. |
| 13. | at a premium,
|
| pre·mi·um (prē'mē-əm) n.
[Latin praemium, inducement, reward : prae-, pre- + emere, to take, buy; see em- in Indo-European roots.] |
Premium
1. The total cost of an option.
2. The difference between the higher price paid for a fixed-income security and the security's face amount at issue.
Investopedia Commentary
1. The premium of an option is basically the sum of the option's intrinsic and time value. It is important to note that volatility also affects the premium.
2. If a fixed-income security (bond) is purchased at a premium, existing interest rates are lower than the coupon rate. Investors pay a premium for an investment that will return an amount greater than existing interest rates.
Related Links
Options Basics Tutorial
Introduction to Put Writing
Advanced Bond Concepts
How Does Your Margin Grow?
See also: Coupon, Discount, Face Value, Intrinsic Value, Option, Time Value, Writer
premium
The price at which an option trades. The size of the premium is affected by various factors including the time to expiration, interest rates, strike price, and the price and price volatility of the underlying asset. Also called option premium.
The amount by which a bond sells above its face value.
The excess by which a warrant trades above its theoretical value.
The amount by which a convertible bond sells above the price at which the same bond without the convertible feature would sell.