Bond Trading at a premium and loss incurred

CFA Level III
#1

Could anyone explain me this statement that “bond trading at a premium loss in the event of default is likely to be larger”?

#2

What are your thoughts on it?

#3

Thanks. I have understood reasoning behind the loss. The reasoning is that since we have bought bond at premium and if the defaults occurs then it will lead to a loss.

#4

But why will the loss be “larger”?

#5

Because we bought at a premium and paid higher price.

#6

Bingo!

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