Which of the Following Statements Concerning the Use of Sinking

question 1

Multiple Choice

Which of the following statements concerning the use of sinking funds to repurchase a bond issue is NOT true?

• A) A firm should make regular payments into a sinking fund administered by a trustee over the life of the bond.
• B) A firm can reduce the amount of outstanding debt without affecting the cash flows of the remaining bonds.
• C) Payments from the sinking fund are used to repurchase bonds.
• D) Bonds can be issued with a sinking fund provision or a call provision, but not both.

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Definitions:

Primary Market Transaction

The sale of new securities directly from the issuer to investors, often via public offerings or private placements.

Investment Banker

A financial professional who advises companies on capital raising, mergers, acquisitions, and other major corporate transactions.

Agency Problems

Agency Problems arise when there's a conflict of interest between the principals (owners or shareholders) and agents (managers or executives) of a company, leading to potentially suboptimal decision-making.

Financial Manager

An individual responsible for overseeing and managing a company's finances, including planning, organizing, controlling, and monitoring financial resources.