At a premium

Reader question:

In this sentence – With snow at a premium, Olympics organizers at one Vancouver, B.C., venue are using bales of straw to augment the white stuff as they construct runs for snowboarding, freestyle skiing, and other events (At Vancouver Olympics, straw battles sun, rain, CNet News, January 29, 2010) – what does “premium” mean?

My comments:

“At a premium” is a fixed phrase and here it simply means that snow is scarce.

This implies that snow is more valuable than usual – If snow is a commodity, it’ll fetch “premium prices”.

This is due, obviously, to the upcoming Winter Olympics – all winter sports take place on snow-covered tracks and fields.

View “premium” as bonus, “an additional amount of money, above a standard rate or amount: farmers are being offered a premium for organically grown vegetables” (Longman Dictionary of Contemporary English). In this example, a “premium” is put on organic vegetables because they are considered healthier. This in turn means in supermarkets these vegetables will be sold at higher prices – or premium prices – than the more commonplace vegetables farmers grow using artificial fertilizers and pesticides.

In short, anything “at a premium” is in short supply or is more valuable/expensive than usual, often both as short supply (or great demand) usually leads to greater prices. Familiarize yourself with this term through reading these media examples:

1. Nottingham Forest expect tickets for their home date with Sheffield Wednesday next Saturday to be at a premium for Reds fans.

Wednesday are expected to bring a large contingent of fans, so seats in the Bridgford Lower stand will not be available to home fans.

That means there will be a significantly lower supply of tickets than there was for recent games against Reading and Coventry.

Such has been the demand so far, there are only 4,000 home tickets left and what’s more, there are only single tickets available in many areas of the ground.

- Tickets At a Premium (NottinghamForest.co.uk, January 29, 2010).

2. When the terms premium and discount are used in reference to bonds, they are telling investors that the purchase price of the bond is either above or below its par value. For example, a bond with a par value of $1,000 is selling at a premium when it can be bought for more than $1,000 and is selling at a discount when it can be bought for less than $1,000.

Bonds can be sold for more and less than their par values because of changing interest rates. Like most fixed-income securities, bonds are highly correlated to interest rates. When interest rates go up, a bond’s market price will fall and vice versa.

To better explain this, let’s look at an example. Imagine that the market interest rate is 3% today and you just purchased a bond paying a 5% coupon with a face value of $1,000. If interest rates go down by 1% from the time of your purchase, you will be able to sell the bond for a profit (or a premium). This is because the bond is now paying more than the market rate (because the coupon is 5%). The spread used to be 2% (5%-3%), but it's now increased to 3% (5%-2%). This is a simplified way of looking at a bond’s price, as many other factors are involved; however, it does show the general relationship between bonds and interest rates.

- What does it mean when a bond is selling at a premium? Is it a good investment? Investopedia.com.

3. Rather than dealing with inequality, some politicians find it tempting to blame “broken families”, “bad parenting” and “damaged” children. Science has made huge leaps in understanding how our biology and psychology are affected by early life experiences, both in the womb and after. Children are deeply sensitive to family relationships and the quality of care. However, this sensitivity, and the way it shapes emotional and cognitive development, is not an evolutionary mistake.

It exists because early life serves as a taster of the kind of society that we may have to deal with in adulthood. It prepares children for the kind of society they are growing up in. Are they in a world of rivals, in which they will have to fight for what they can get, fend for themselves and learn not to trust others? Or will they need to gain one another’s trust, dependent on co-operation and reciprocity, in a world where empathy and social skills are at a premium?

- A broken society, yes. But broken by Thatcher, Guardian.co.uk, January 29, 2010.