If a bond issue has a sinking fund provision then

Question

Quizplus · Accepted Answer

A sinking fund provision requires the corporation to make payments on a preconceived schedule to a trustee who uses the funds to retire bonds by purchasing them in the marketplace. This effectively reduces the amount of outstanding debt and can improve the creditworthiness of the company. Option B is incorrect as a sinking fund provision does not allow the value of the bonds to fall before default occurs. Option C is also incorrect as interest payments are used to pay interest and not to retire bonds.

If a Bond Issue Has a Sinking Fund Provision Then