A bond sells at a discount when the: select one:

a. contract rate is above the market rate.

b. contract rate is equal to the market rate.

c. contract rate is below the market rate.

d. bond has a short-term life.

e. bond pays interest only once a year.

I think the correct answer would be C. A bond sells at a discount when the contract rate is below the market rate. This type of bond is called the discount bond. The interest rate of this bond which is called the coupon is typically being paid semianually. As the rates increases, the prices of these bonds would go down. Discount bonds is comparable to zero-coupon bonds which are being sold with a discount with the only difference is the interest rate since the latter do not pay interest. Example of a discount bond would be the Treasury bills and the saving bonds.