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) Mortgage bonds have less default risk than debentures.
D) Both a and c are correct.
E) All of the statements above are correct.

Question

Quizplus · Accepted Answer

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 - this statement is correct.
B) A bond sinking fund would be good for investors if interest rates have declined after issuance and the investor's bonds get called - this statement is incorrect. A sinking fund is set up to retire bonds over time to reduce debt, it does not guarantee call or redemption of bonds.
C) Mortgage bonds have less default risk than debentures - this statement is correct.
Therefore, choice D is correct as both statements A and C are true.

Which of the Following Statements Is Correct