What is an advantage of issuing a bond with a sinking fund provision?
A) This provision offers greater security to an investor because funds to retire the bond issue are set aside each year into the sinking fund.
B) The bonds may be converted to a specified number of shares of common stock at the firm's convenience.
C) The firm has the right to call in the outstanding bonds at any time and thus sink the bond issue.
D) The firm can decide to redeem the fund at any time.
E) The firm may retire portions of the bond issue at different predetermined dates.

Question

Quizplus · Accepted Answer

A sinking fund provision offers greater security to an investor because funds are set aside each year into the sinking fund that will be used to retire the bond issue. This creates a guaranteed source of funds to repay the bondholders at maturity or in case of early redemption. As a result, investors are more likely to invest in bonds with a sinking fund provision, which can make it easier and less expensive for the issuer to raise capital.

What Is an Advantage of Issuing a Bond with a Sinking