What Is an Advantage of Issuing a Bond with a Sinking

question 63

Multiple Choice

What is an advantage of issuing a bond with a sinking fund provision?

• A) This provision offers greater security to an investor because funds to retire the bond issue are set aside each year into the sinking fund.
• B) The bonds may be converted to a specified number of shares of common stock at the firm's convenience.
• C) The firm has the right to call in the outstanding bonds at any time and thus sink the bond issue.
• D) The firm can decide to redeem the fund at any time.
• E) The firm may retire portions of the bond issue at different predetermined dates.

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Definitions:

Equity

The residual interest in the assets of an entity after deducting liabilities, representing the ownership value held by shareholders.

Fair Value

The figure that represents either the income from an asset sale or the expense for settling a liability during a coordinated trade between market participants on the agreed upon date of appraisal.

Fair Value

An estimation of the price at which an asset or liability would be willingly exchanged between market participants at an arm's length transaction.

Consolidated Balance Sheet

A financial report that merges the assets, liabilities, and equity of a parent company with its subsidiaries, depicting them as one unified entity.