The purpose of a sinking fund is to:
A) reduce the par value of stock over time.
B) take advantage of the tax break on preferred stock.
C) periodically retire debt prior to final maturity.
D) allow risky corporations to avoid bankruptcy.

Question

Quizplus · Accepted Answer

The purpose of a sinking fund is to periodically retire debt prior to final maturity. This allows the issuer of the debt to reduce its financial risk and potentially improve its creditworthiness. It is not related to reducing the par value of stock, taking advantage of preferred stock tax breaks, or avoiding bankruptcy for risky corporations.

The Purpose of a Sinking Fund Is To