|Author||Topic: Question for Fixed income level 1 2014|
|Pls help me as below:
Repayment of principle through sinking fund by two ways:
- Cash payment: The issuer may deposit annually with trustee who then retire by using a selection method such as lottery. The bonds selected by trustee are retired at par,
- Delivery of securities: the issuer purchase bonds with total par value equal to the amount that is to be retired in that year in the market and deliver them to the trustee who then retire them.
If the bonds are trading below par value, delivery of bonds purchased in the market is less expensive alternative. If bonds are trading above the par value, delivery cash to the trustee to retire the bonds at par is less expensive way to satisfy the sinking fund requirement.