You are considering two bonds. Both are rated double A (AA), both mature in 20 years, both have a 10 percent coupon, and both are offered to you at their $1,000 par value. However, Bond X has a sinking fund while Bond Y does not. This is probably not an equilibrium situation, as Bond X, which has the sinking fund, would generally be expected to have a higher yield than Bond Y.

Question

Quizplus · Accepted Answer

The statement is incorrect. Bond X, which has the sinking fund, would generally be expected to have a lower yield than Bond Y.

You Are Considering Two Bonds