I have a question about municipal bonds selling at a premium: If I buy, for example, a 10-year face-value muni bond with a 5% coupon for $1,000 par and pay a 10% premium over par, I pay $1,100 to buy the bond. When the bond matures, I get back $1,000 and earn the stated yield-to-maturity when I purchased the bond. Assume that I can roll over a maturing $1,000 bond and use the proceeds to obtain a new bond selling at $1,100. To obtain the $100 premium, assume I go into my checking account.
Isn’t the upfront $100 premium simply returned to me over the life of the bond in the form of a slice of each coupon interest payment? That is, isn’t repayment of the $100 premium simply a return of my investment ($100), not a return on my investment ($100)?