Which type of bond is sold below its par value?

A bond that is sold below its par value is known as a discount bond. This type of bond is issued or trades for less than its face value, which means that investors can purchase it at a lower price than what they will receive upon maturity. The difference between the purchase price and the par value at maturity represents the investor's return.

When bonds are issued in a market with higher prevailing interest rates, existing bonds with lower rates will typically sell at a discount to attract buyers. This incentivizes investors by providing an effective yield higher than the bond's coupon rate, balancing the impact of higher market interest rates.

In contrast, premium bonds are sold above their par value because they typically have coupon rates that are higher than the current market rates. Convertible bonds allow holders to convert their bonds into a predetermined number of shares of the issuer's stock, while zero-coupon bonds are sold at a significant discount and do not pay periodic interest but are redeemed at par value at maturity. The essential feature of a discount bond, however, is its sale below par value, distinguishing it clearly from the other types listed.