How is a bond priced when its market value is greater than par value?

A bond is priced at a premium when its market value exceeds its par value. This situation typically occurs when the coupon rate of the bond, which is the interest rate it pays, is higher than the prevailing market interest rates. Investors are willing to pay more for such a bond because it offers more attractive returns compared to new issues that are being sold at those higher market rates.

For instance, if a bond has a par value of $1,000 and pays an interest rate of 6% while new bonds are being issued at a 4% rate, investors will likely bid up the price of the existing bond to gain that higher interest payment. Consequently, investors will pay more than the original $1,000, resulting in a premium price for the bond.

Other options such as pricing at a discount or at par would indicate either lower market value or equal market value respectively, which does not apply in this context where the bond’s market value is specifically stated to be greater than its par value.