THE PREMIUM



 

 

 

 

The premium, also known as premium, is a mark-up, which will be expressed in monetary units or percentages. The opposite of the agio represents the discount , the discount . It must be paid in addition to the nominal amount, for example, a loan, in addition to the lender . In this way, a loan is paid out to 100 percent, but for example, 102 percent must be repaid. The premium can also be considered as a kind of fee for the loan, which not only increases the annual percentage rate and thus the total cost of a loan. However, despite the premium, the interest payment is made on the nominal amount, which reduces the overall burden on the interest to be borne. With a loan, it is usually cheaper to choose a premium.

 

If, when applying for a loan, you choose between a premium and a discount, the premium should be used if possible, since the entire loan amount is paid out. A discount would have to be financed with specially raised funds.

 

The premium

 

The premium on a loan is often 5 percent, but there is also the possibility to save the premium on Internet banks. Particularly in the field of securities trading, the term agio will often be found. Here, a premium is often added as an expense premium to the funds. In the case of a share issue, agio is added to a capital reserve of the stock corporation and is then part of the equity in the balance sheet. The premium represents the difference between the face value and the market value, or issue value, of securities. Shares are therefore issued “above par”, whereas bonds are valued at or below par.

If an amount exceeds the actual face value when securities, equity investments or fund investments are issued, this is referred to as agio. The same applies to the repayment, because the amount to be repaid is greater than the nominal value.

The agio may include the fees and commissions that may be incurred when concluding a contract. The premium on an issue of bonds is shown as a deferred income item in the balance sheet. The repayment premium is reported as an active item.
For warrants, the agio expresses the percentage by which an Underlying must rise or fall until maturity, in order to avoid losses for the buyer. The agio therefore represents additional costs, which would otherwise be incurred in the case of a discount, but in a different way.