Which of the Following Statements Is CORRECT

question 3

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

TFC

Total Fixed Cost, which refers to the sum of all costs that do not change with the level of output produced by a firm.

Techniques of Production

The methods and processes used in the transformation of inputs into outputs by firms in the production of goods and services.

Price of Output

The amount of money that a producer receives for selling one unit of a product or service in the market.

Price of Inputs

The cost of resources used in the production of goods and services, including materials, labor, and overheads.