When do bonds typically sell at a premium?

Bonds typically sell at a premium when the stated interest rate, or coupon rate, is higher than the prevailing current market rates for similar bonds. This occurs because investors are willing to pay more for a bond that offers a higher return compared to what is available in the market. When market interest rates rise, existing bonds with lower rates become less attractive, while those with higher rates retain their appeal. Consequently, bonds with higher interest payments become sought after, leading to an increase in their prices above the face value, which is referred to as selling at a premium.

The other options focus on different scenarios that do not generally lead to bonds selling at a premium. Financial distress typically leads to discounts as investors are wary of default risks. Similarly, when a bond matures, it is redeemed at face value, so it is not relevant to the premium context. Lastly, a company's failure to pay interest would signal a serious risk, making those bonds less attractive and likely causing them to sell at a discount rather than a premium.