Which financial instrument matures at face value but is sold at a discount?

The correct answer is commercial paper, as it is a short-term unsecured promissory note issued by companies to finance their immediate needs, such as inventory purchases or payroll. Commercial paper is sold at a discount to its face value and matures at that face value. This means that investors buy the instrument for less than its face amount and receive the full face value upon maturity. The difference between the purchase price and the maturity value represents the interest earned on the investment.

Understanding commercial paper is important as it is a key financing tool for corporations and plays a significant role in the money market. It allows companies to access capital efficiently without the need for long-term debt arrangements, typically for maturities ranging from a few days to up to 270 days.

Other options, like banker's acceptances, while they do have discounting features, also incorporate a guarantee component that distinguishes them from commercial paper. Perpetual preferred shares, on the other hand, provide dividends but do not have a maturity feature, and money market funds are investment vehicles that pool money from multiple investors to invest in short-term debt instruments but do not themselves mature or come at a discount in the same manner as commercial paper.