When the market rate of interest is more than the contract rate of a bond, the bond will sell for a discount.

Question

Quizplus · Accepted Answer

This is because investors are not willing to pay full price for a bond with a lower contract rate of interest when they can invest in other bonds that offer a higher market rate of interest. As a result, the bond's price will be reduced (sold at a discount) until its yield is comparable to that of other bonds in the market.

When the Market Rate of Interest Is More Than the Contract