Final answer:
Option D: A bond sells at a discount when its coupon rate is less than the current market yield and also below the yield to maturity; this is to compensate investors by offering a yield in line with higher market interest rates.
Step-by-step explanation:
A bond will sell at a discount when the coupon rate is less than the current yield and the current yield is less than the yield to maturity, which corresponds to option D.
If the coupon rate of the bond is less than the prevailing market interest rates, the bond's price will drop below its face value to offer a competitive yield to maturity to new investors.
This happens because the fixed interest payments are less attractive compared to the new bonds issued at the higher prevailing rates.