When is a bond issued at a premium?

A bond is issued at a premium when the stated interest rate on the bond is higher than the prevailing market rate of interest. This situation occurs because investors are willing to pay more for a bond that offers higher interest payments compared to what is currently available in the market.

When the bond's interest payments exceed those available from other investments, it becomes more attractive, leading to a greater demand, which pushes its price above the face value. The premium essentially reflects the additional amount investors are willing to pay for the increased return that the bond provides due to its higher interest rate.

In contrast, bonds issued at a discount occur when the stated interest rate is lower than the market rate, as investors will only purchase those bonds at a price lower than face value to make up for the lower payments. Similarly, if the stated rate equals the market rate, the bond would be sold at its face value, and the attractiveness would not lead to a premium. Therefore, option C correctly identifies the condition where a bond is issued at a premium.