Question

Sinking fund bonds: Multiple Choice Require equal payments of both principal and interest over the life of the bond issue. Require the issuer to set aside assets to pay bonds at maturity. Are bearer bonds.

Answer 1

Require the issuer to set aside assets to pay bonds at maturity.

Bonds that require the issuer to set aside a pool of assets used only to repay the bonds at maturity.

What is Sinking Fund Bond ?

A sinking fund is maintained by companies for bond issues, and is money set aside or saved to pay off a debt or bond.

• Bonds issued with sinking funds are lower risk since they are backed by the collateral in the fund, and therefore carry lower yields.

• example may be a company issuing $1 million of bonds that are to mature in 10 years. Given this, it creates a sinking fund and deposits $100,000 yearly to make sure that the bonds are all bought back by their maturity date

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