CFA Practice Question

There are 252 practice questions for this study session.

CFA Practice Question

The bond issuer makes periodic payments to a trustee who retires part of the issue by purchasing the bonds in the open market. This is an example of:

A. sinking fund bond.
B. extendible bond.
C. series bond.
Correct Answer: A

From the investor's point of view, a sinking fund adds safety to a corporate bond issue: with it, the issuing company is less likely to default on the repayment of the remaining principal upon maturity since the amount of the final repayment is substantially less. This added safety affects the interest rate at which the company is able to offer bonds in the marketplace.

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