Bonds whose indentures contain a provision which requires the issuing firm to make a provision for partial early retirement of the bond issue include serial bonds and _____ bonds.
A)callable
B)refunded
C)sinking fund
D)convertible
E)zero coupon

Question

Quizplus · Accepted Answer

Sinking fund bonds require the issuer to make periodic payments into a sinking fund for the purpose of retiring the bond issue partially or completely before the maturity date. This provision ensures that the bondholders receive some portion of their principal before the maturity date, which reduces the risk of default and may improve marketability. Callable bonds may be redeemed by the issuer before the maturity date, but the proceeds may not be used for partial retirement of the bond issue. Refunded bonds have their principal and interest payments replaced by those of a new bond issue, but there is no provision for early retirement. Convertible bonds may be exchanged for common stock at the option of the investor, and zero coupon bonds do not make periodic interest payments.

Bonds Whose Indentures Contain a Provision Which Requires the Issuing