A Sinking Fund Is Useful to Bondholders Because

question 10

Multiple Choice

A sinking fund is useful to bondholders because:

• A) it stops the company from going under or into default.
• B) the funds are usable at the option of the bondholders.
• C) when a firm has difficulty making payments this sends a signal of potential default.
• D) a balloon payment is necessary to fully pay off the bonds at maturity.

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Definitions:

Charging Interest

The act of lending money or capital with the expectation of receiving payment back plus additional money, known as interest, which serves as the cost of borrowing.

Corporate Profits

Corporate profits denote the earnings of a company after all expenses, taxes, and costs have been subtracted from total revenue.

Proprietors' Profits

The earnings retained by the owners after all expenses have been deducted from the gross income of an unincorporated business.

National Income

The total value of all income earned by the residents of a country in a given period, including wages, profits, and investment returns.