Which of the Following Statements Regarding Sinking Fund Provisions Is

question 64

Multiple Choice

Which of the following statements regarding sinking fund provisions is FALSE?

• A) With a sinking fund, if a bond is trading at below its face value, because the bonds are repurchased at par, the decision as to which bonds to repurchase is made by lottery.
• B) With a sinking fund, instead of repaying the entire principal balance on the maturity date, the company makes regular payments into a sinking fund administered by a trustee over the life of the bond.
• C) Sinking fund provisions usually specify a minimum rate at which the issuer must contribute to the fund.
• D) Because the sinking fund allows the issuer to repurchase the bonds at par, the option to accelerate the payments is another form of call provision.

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Definitions:

Contributions

Contributions or aids given to a collective pool or fund.

Compounded Semi-Annually

Interest on an investment or loan calculated twice a year and added to the principal.

Economic Values

The worth of goods or services as determined by the market or the intrinsic importance or utility they offer to individuals.

Compounded Monthly

Interest on a loan or investment calculated monthly and added to the principal sum for the calculation of subsequent interest.