When a fixed income security is being traded at the price above its face value it is trading:
a)
Like a hot potato! Because everyone wants a piece of that fixed income goodness. It's like the security is saying, "Hey, I'm worth more than what I'm originally supposed to be! Come and get me!" So, when a fixed income security is being traded above its face value, it is trading at a premium.
At a premium.
When a fixed income security is being traded at a price above its face value, it is trading at a premium. This means that investors are willing to pay more for the security than its original value or face value. The face value of a fixed income security represents the principal amount that will be repaid to the investor upon maturity.
To determine whether a fixed income security is trading at a premium, you can follow these steps:
1. Know the face value: Determine the face value of the fixed income security. This is the amount that the issuer promises to repay to the investor at maturity.
2. Check the market price: Obtain the current market price of the fixed income security. This is the price at which investors are buying or selling the security in the market.
3. Compare the market price to face value: Compare the market price with the face value. If the market price is higher than the face value, then the security is trading at a premium.
By comparing the market price to the face value, you can determine whether a fixed income security is trading at a premium, at par (when the market price equals the face value), or at a discount (when the market price is lower than the face value).