Which of the Following Statements Is CORRECT

question 82

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:

Lessor

An entity or individual who leases or rents out an asset to another, known as the lessee, under a lease agreement.

Lease Period

The specified duration for which a lease agreement is effective, giving the lessee the right to use an asset.

Financial Lease Arrangement

A type of lease where the lessee pays for the use of an asset for most of its useful life and has rights similar to ownership.

Operating Lease

A contract that allows for the use of an asset but does not convey rights of ownership of the asset.