What is the term used for an additional amount paid for a bond that is traded above its par value?

The term used for an additional amount paid for a bond that is traded above its par value is "premium." When a bond is issued at par value, this is typically considered its face value, and investors usually expect to buy and hold it at that price. However, market conditions, interest rates, and the bond's credit quality can lead to a scenario where a bond sells for more than its par value.

When this occurs, the difference between the selling price and the par value is referred to as a premium. This premium reflects the additional value investors are willing to pay for the bond, often due to its attractive features, such as a higher interest rate compared to prevailing rates or the issuer's strong creditworthiness.

Understanding the concept of a premium is crucial for investors as it impacts the yield they ultimately receive on the bond and can influence their investment strategy.