What happens when a bond is issued at a premium?

When a bond is issued at a premium, the market rate is lower than the stated rate. This scenario occurs because investors are willing to pay more for a bond that offers a higher return compared to what is currently available in the market. The stated rate, also known as the coupon rate, reflects the interest payments the bond will provide based on its face value. If this rate is higher than the current market interest rates, buyers are incentivized to purchase the bond despite its higher price, resulting in the bond being sold at a premium.

This situation leads to a higher price than the bond's par value, which is the amount the issuer promises to pay at maturity. As a result, investors will receive the stated interest payments, which are more attractive than what can be found elsewhere at lower market rates, thereby justifying the premium price they are willing to pay.