What is a sinking bond?

A sinkable bond is a type of debt that is backed by a fund set aside by the issuer. The issuer reduces the cost of borrowing over time by buying and retiring a portion of the bonds periodically on the open market, drawing upon the fund to pay for the transactions.

What term is used to describe an account that a bond?

debenture. What term is used to describe an account that a bond trustee manages for the sole purpose of redeeming bonds early? A call provision grants the bond issuer the: option of repurchasing the bonds prior to maturity at a prespecified price.

What is the document called that lists the terms of a bond?

A bond purchase agreement (BPA) is a legally binding document between a bond issuer and an underwriter establishing the terms of a bond sale.

Which of the following events would make it more likely that a firm would call its outstanding callable bonds?

Answer and Explanation: The correct answer is B. The callable bonds are more likely to be called by a company when the market rates decline sharply. The company refinances the debt by the issue of new bonds at a lower coupon rate.

Why is it called a sinking fund?

Why is it called a sinking fund? Don’t be fooled by the seemingly negative word “sinking.” In more traditional circles, “sinking fund” refers to money set aside to pay off long-term debt such as a bond. The term “sinking” likely refers to the decreasing level of debt remaining as it gets paid off.

What is the term of bonds?

The term of the bond is the amount of time between bond issuance and bond maturity. On the maturity date of a term bond, the bond’s face value, the principal amount, must be repaid to the bondholder.

What is a bond quizlet?

A bond is a long or short term debt instrument (a loan) issued by corporations and municipal, state and federal agencies. A bond is a contract; it’s an IOU. Principal, Face Value, Maturity Value, and Par Value. The amount of money the firm borrows and promises to repay at some future date, usually at the maturity date.

What is the purpose of the sinking fund quizlet?

The purpose of a bond sinking fund is to: repay bonds early either through purchases or calls.

Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1 %?

If the yield to maturity remains constant, the bond’s price one year from now will be lower than its current price. Which of the following bonds would have the greatest percentage increase in value if all interest rates in the economy fall by 1%? 20-year, 10% coupon bond.

Can a bond be called before call date?

A call date refers to the date when a callable bond can be redeemed for a specific call price before its maturity date. There can be more than one call date where the issuer owns the right to redeem the bond prematurely before the bond’s maturity date. The callable bond can be redeemed at par or at a premium.

Where does the term sinking fund come from?

The term sinking fund comes from the world of corporate finance. There, it refers to money companies set aside for long-term debts such as corporate bonds, making it easier to repay the principal amount when the bonds mature. It’s the same concept with a personal sinking fund.

What is sinking fund?

A sinking fund is money you set aside for a specific upcoming expense. Unlike a general savings account or emergency fund, a sinking fund has a clear purpose attached to it—whether it’s to save for a vacation, down payment on a home, or a big-ticket splurge.

What is a sinking fund quizlet?

sinking fund. 1)A sinking fund is a fund established by an economic entity by setting aside revenue over a period of time to fund a future capital expense, or repayment of a long-term debt.

What is sinking fund provision?

The sinking fund provision is really just a pool of money set aside by a corporation to help repay previous issues and keep it more financially stable as it sells bonds to investors.

What is the best description of a bond quizlet?

A long-term debt instrument issued by a government or corporation for a specific amount of time for the purpose of raising capital.

What is a bond and how is it used quizlet?

bonds are long-term debt, issued by corporations and governments to finance operations or special projects. A corporation must pay interest on its bonds, and if the corporation goes bankrupt, bondholders are paid before stockholders (so bonds are safer than stock!)

What is a sinking fund requirement in a bond issue quizlet?

Terms in this set (16) A sinking fund typically requires no call premium. provision that requires the corporation to retire a portion of the bond issue each year. The purpose of the sinking fund is to provide for the orderly retirement of the issue. A sinking fund typically requires no call premium.

Which of the following bonds would have largest interest rate risk?

A 10-year, $1,000 face value, zero-coupon bond has the greatest interest rate price risk. A bond’s interest rate risk depends mainly on two…