Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

• A) Sinking fund provisions sometimes turn out to adversely affect bondholders,and this is most likely to occur if interest rates decline after the bond was issued.
• B) Most sinking funds require the issuer to provide funds to a trustee,who holds the money so that it will be available to pay off bondholders when the bonds mature.
• C) A sinking fund provision makes a bond more risky to investors at the time of issuance.
• D) Sinking fund provisions never require companies to retire their debt;they only establish "targets" for the company to reduce its debt over time.
• E) If interest rates increase after a company has issued bonds with a sinking fund,the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price.

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Definitions:

Shareholders' Equity

Shareholders' Equity is the residual interest in the assets of a corporation after deducting its liabilities, essentially representing ownership equity.

Dividends Paid

Disbursements from a company's earnings given to its shareholders, commonly known as profit sharing.

External Financing

Funds a business obtains from outside sources, such as loans, investments, or grants, to support its operations or growth.

Dividend Payout Ratio

A financial metric that shows the percentage of a company's earnings paid to shareholders as dividends, reflecting the company's dividend policy and financial health.