What is the purpose of the sinking fund?
A)To force the issuing company to save money to retire the bonds at maturity
B)To raise outside capital to sink back into the company
C)To cause the coupon rate to increase
D)None of the above is correct.

Question

Quizplus · Accepted Answer

The purpose of a sinking fund is to force the issuing company to save money to retire the bonds at maturity. By requiring the issuer to set aside money each year, they are able to reduce their risk and increase the likelihood that they will be able to pay off the bonds at maturity. This provides additional security to investors and can help to increase demand for the bonds.

What Is the Purpose of the Sinking Fund