Answer:
True. When the market rate of interest is higher than a bond's coupon rate, the bond will typically sell at a discount. This is because investors are willing to pay less for a bond with a lower fixed interest rate (coupon rate) when they can obtain higher returns by investing in bonds with higher market interest rates. As a result, the bond's market price is lower than its face value, which creates a discount.
Conversely, when the bond's coupon rate is higher than the prevailing market interest rate, the bond may sell at a premium because investors are willing to pay more for the higher fixed interest payments it offers compared to other available investments.