The purpose of a sinking fund is to:
A)Reduce the par value of stock over time
B)Take advantage of the tax break on preferred stock
C)Periodically retire debt prior to final maturity
D)Allow risky corporations to avoid bankruptcy

Question

Quizplus · Accepted Answer

The purpose of a sinking fund is to periodically retire debt prior to final maturity. This helps the corporation to reduce its debt load over time and makes it less risky for investors. It also protects the bondholders by ensuring that the corporation has the funds to pay back the principal amount of the debt when it matures.

The Purpose of a Sinking Fund Is To