CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

A sinking fund is useful to bondholders because ______

A. it stops the company from going under or into default.
B. the funds are usable at the option of the bondholders.
C. when a firm has difficulty making payments this sends a signal of potential default.
D. a large payment is necessary to fully pay off the bonds at maturity.
Correct Answer: C

User Contributed Comments 8

User Comment
examinee the whole purpose of sinking fund is to reduce the lump sum payment at the end.
danlan Reduce the lump sum payment at the end, and reduce the loss when default happens (since lots of principal has been paid)
dipu617 Shouldn't be "D" the answer?
michlam14 i agree, C makes sense, but like examinee, D is the whole point of the exercise.
johntan1979 Try reading the question and then D. Makes sense?

Not to me.
SKIA Johntan1979 coming through with another a$$hole comment as per usual
Spartan666 C makes sense because they are talking about bondholders, not issuers.
maryprz14 C makes sense, but the wording is weird; "... this sends signal of potential default, SO the sinking fund is helpful"
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