When a bond is issued at a discount, what is true about the market rate?

When a bond is issued at a discount, the market rate is higher than the stated rate. A bond's stated rate, also known as the coupon rate, is the interest rate that the bond issuer promises to pay bondholders. However, the market rate reflects the current interest rates available in the market for bonds of similar risk and duration.

When the market interest rates rise above the coupon rate of a bond, investors will demand a higher return to compensate for the lower interest income associated with bonds that have a lower stated rate. As a result, the bond must be sold at a discount from its face value to entice investors, allowing them to achieve a higher yield that aligns with the current market rate. This discount compensates for the lower interest payments in relation to the prevailing market conditions.

So, in summary, when a bond is issued at a discount, it indicates that the market rate is higher than the bond's stated rate, aligning investor expectations with current market conditions.