A bond sells at a discount when the:
A) Contract rate is equal to the market rate.
B) Bond pays interest only once a year.
C) Contract rate is above the market rate.
D) Contract rate is below the market rate.
E) Bond has a short-term life.

Question

Quizplus · Accepted Answer

A bond sells at a discount when the contract rate (also known as coupon rate) is below the market rate (also known as yield to maturity). This is because investors are willing to pay less for a bond with a lower interest rate than what they could get in the market. As a result, the bond's price is discounted to make it more attractive to buyers.

A Bond Sells at a Discount When The