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Bond Sinking

Which of the following statements is correct?

a.If a company is retiring bonds for sinking fund purposes, it will buy back bonds on the open market when the coupon rate is less than the market interest rate

b.A bond sinking fund would be good for investors if interest rates have declined after issuance and the investor's bonds get called.

c.A company that files for chapter 11 reorganization under the federal Bankruptcy Act can temporarily prevent foreclosure and seizing of the assets of the company. Liquidation may still occur for this company.

d.Statements a and c are correct.

e.All the statements above are correct.

Solution Preview

Sinking fund: A means of repaying funds advanced through a bond issue. The issuer makes periodic payments to a trustee, who retires part of the issue by purchasing the bonds in the open market.

This means that every period a company will pay back a portion of their bonds.

An example would be a company that ...