Question

A sinking fund provision is _______ to investors, so bonds with a sinking fund provision generally have _______ yields than bonds without.

Answer 1

A sinking fund provision is attractive; to investors, so bonds with a sinking fund provision generally have lower yields than bonds without.

What is sinking fund provision?

Sinking provision means setting funds over time which are meant to repay the bond principal amount at bond maturity , in other words, a bond with such provision is safe because to a large extent, there would be no default on repayment of principal.

Besides, the fact that sinking fund provision on bonds is attractive means such bonds would earn lower  yield as there is an inverse relationship between risk and return

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Full question with options:

A sinking fund provision is ________ to investors, so bonds with a sinking fund provision generally have _______ yields than bonds without.

a. unattractive; higher

b. unattractive; lower

c. attractive; lower

d. attractive; higher