What type of bond has a market discount when the value decreases after its issue date?

A market discount bond is one that sells for less than its face value, which means it has a market discount. This typically occurs when interest rates rise after the bond has been issued or when the bond's credit quality deteriorates. As a result, the bond’s market value decreases, leading to a situation where the bond can be purchased at a lower price in the market than its original issuance price.

When a market discount bond matures, the investor receives the face value, which represents a gain over the lower purchase price. This scenario incentivizes investors to purchase the bond despite the decrease in value, as they can benefit from the price appreciation at maturity.

In contrast, a premium bond is issued at a price higher than its face value, generally resulting from lower prevailing interest rates at issuance. A convertible bond gives the holder the option to convert it into a predetermined number of shares of the issuing company’s stock, which is irrelevant to market discount conditions. A zero-coupon bond does not make periodic interest payments and is sold at a deep discount to its face value, but it does not inherently imply market discount; rather it reflects a different but specific pricing structure.

Thus, the bond type that best fits the description of having a market discount due to a