Firms establish a ________ so that sufficient funds are available to repay bondholders on the maturity date.

Question

Quizplus · Accepted Answer

A sinking fund is established by firms to accumulate funds over a period of time so that there are adequate funds available to pay bondholders when the bonds mature. This provides an added layer of security for investors and lowers the risk of default for the company issuing the bonds. Mutual funds, retirement accounts, and encumbered accounts do not serve the same purpose as a sinking fund.

Firms Establish a ________ So That Sufficient Funds Are Available