Final answer:
A bond sells at a discount when the coupon rate is less than the market interest rate.
Step-by-step explanation:
In financial terms, a bond is an "I owe you" note that an investor receives in exchange for capital (money). Bonds have a face value, coupon rate, and maturity date. The coupon rate is the interest rate that the borrower agrees to pay the investor, and the market interest rate is the prevailing interest rate in the market. A bond sells at a discount when the coupon rate is less than the market interest rate.
For example, let's say a bond has a face value of $1,000, a coupon rate of 4%, and a maturity period of 5 years. If the market interest rate is 6%, the bond would sell at a discount because the coupon rate is lower than the market interest rate. This means that the bondholder would receive less interest income compared to the prevailing market rate, so the bond would be priced lower to compensate for this difference.