Sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis prior to their final maturity. Many indentures allow the company to acquire bonds for sinking fund purposes by either (1) purchasing bonds on the open market at the going market price or (2) selecting the bonds to be called by a lottery administered by the trustee, in which case the price paid is the bond's face value. True / False.

Question

Arthur Barrera

Business

1 February, 14:58

Sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis prior to their final maturity. Many indentures allow the company to acquire bonds for sinking fund purposes by either (1) purchasing bonds on the open market at the going market price or (2) selecting the bonds to be called by a lottery administered by the trustee, in which case the price paid is the bond's face value. True / False.

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Answers (1)

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Cameron Nguyen · Answer 1

True

Explanation:

Sinking funds are basically small savings kept aside each year for the upcoming payment of long term debt, to met or it can be used for payment of bonds issued, which will be matured this year.

In many cases sinking funds are maintained through either purchase of bonds through open market or through a lottery system.

Either cases there are no legal purpose or system defined for sinking funds.

Therefore, the correct answer is:

True