Final answer:
Considering the scenario where market interest rates have risen above the bond's coupon rate, the bond will sell at a discount to its par value to remain competitive. Hence, the correct answer is C. The bond sells at a discount to par.
Step-by-step explanation:
To assess the price of a bond in relation to its par value, we need to consider the bond's characteristics such as the coupon rate, face value, and market interest rates. When interest rates in the economy rise above the bond's coupon rate, the bond becomes less attractive. To make the bond more appealing, the bond seller will typically lower the price below its face value to offset the lower interest rate it offers.
In the given scenario, as the prevailing interest rates have increased to 12%, and the bond in question offers an 8% return with one year left to maturity, the bond will effectively sell at a discount. This means the correct answer to the question "What is the price of the bond in relation to its par value?" would be C. The bond sells at a discount to par.