What is the significance of a premium bond to investors?

A premium bond is sold at a price above its face or par value, which makes it particularly appealing to certain investors. The primary significance of a premium bond to investors is that it can be sold for a profit above its par value. When investors purchase these bonds, they are paying a higher initial cost than the bond's face value, but they typically do so because the bond has features that make it attractive, such as a higher interest rate than current market rates or a favorable credit quality of the issuer.

As the bond approaches its maturity date, the investor may sell it at a price that reflects its higher value, potentially yielding a profit. This profit arises because the market price can exceed the par value, especially if interest rates decrease after the bond has been issued, making its fixed coupon payments more desirable in comparison. Therefore, the potential for selling the bond for a profit is a significant advantage for investors who hold premium bonds.

Other aspects like yields, liquidity, and maturity periods do play a role in the bond market, but they don't capture the essence of why premium bonds are significant to investors in the context of price appreciation and profit realization.