Question

why would someone invest in a bond that paid less than the market rate at the time?

Answer 1

Market rate of interest are always subject to fluctuations and subject to change in the monetary policy by Federal Reserve.

When the Federal Reserve increases or decreases the interest rates, the prevalent market rate of interest keeps on changing so the bond holder will always be having a opportunity gain, or opportunity loss, but there is uniformity in bond holding while there is no uniformity in market rate of interest, as they are highly volatile and they will keep on changing.

The only loss the shareholder can have is a loss of opportunity which is not the real loss, which is not to be recorded into the books of account so shareholders always invest in bonds because they always want a regular and uniform stream of income and they also know that their principal amount is highly safe.