A sinking fund may be useful to a corporation because
A)the corporation does not have to worry about paying the bondholders.
B)it may provide the corporation with the option to acquire the bonds at the lower of face value or market price.
C)the payments to the sinking fund are not necessary when the firm is in financial difficulty.
D)they are simple and easy to monitor.

Question

Quizplus · Accepted Answer

A sinking fund may provide the corporation with the option to acquire bonds at the lower of face value or market price. This can be advantageous for the corporation if market conditions cause the bond price to drop below face value. Additionally, having a sinking fund can provide reassurance to bondholders that the corporation is committed to meeting its obligations, which can make the corporation's bonds more attractive to investors. The other choices are incorrect because paying bondholders is still necessary even with a sinking fund, payments to the sinking fund may still be required in financial difficulty, and monitoring a sinking fund can be complex.

A Sinking Fund May Be Useful to a Corporation Because