€100 nominal value of a bond is currently being traded on the market at €125. This bond is said to be:

• A. A standing above par.
• B. B subordinated to its issue price.
• C. C illiquid.
• D. D overpriced.

Answer: (A)

When a bond’s market price is higher than its face value, it is said to be trading at a premium or standing above par. Here the bond’s nominal value is €100 and it’s trading for €125, so it is above par. This premium often happens because the bond’s coupon payments are relatively high compared with current interest rates, making the bond more valuable than a new issue. If you buy it at €125, you’ll still receive €100 at maturity, so your yield to maturity will be lower than the coupon rate and closer to prevailing market rates. The other options don’t fit: “subordinated to its issue price” isn’t about price level, “illiquid” isn’t indicated by a higher price, and “overpriced” isn’t a standard market description for a bond trading above par.