A sinking fund is useful to a corporation because:

Question

Quizplus · Accepted Answer

A sinking fund provides the corporation with the option to buy back the bonds at the lower of face value or market price, which can be beneficial if interest rates have decreased since the bond was issued. Option A is incorrect because the corporation is still responsible for paying the bondholders. Option C is also incorrect because a sinking fund payment is a contractual obligation and cannot be avoided, even in times of financial difficulty. Option D is incorrect because monitoring a sinking fund requires careful attention to ensure that payments are made on time and that the fund's investments are performing well.

A Sinking Fund Is Useful to a Corporation Because