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:

Government Purchases

Expenditures by government entities on goods and services that contribute to a country's gross domestic product (GDP).

Nominal Interest Rate

The interest rate before adjusting for inflation, representing the surface rate at which interest is paid by a borrower for the use of money.

Exchange Rate

The price measured in one country’s currency of purchasing one unit of another country’s currency

Employment

The condition of having paid work or the number of people within an economy who are currently employed.