Which statement regarding sinking funds is true?
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If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price.
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Most sinking funds require the issuer to provide funds to a trustee, which saves the money so that it will be available to pay off bondholders when the bonds mature.
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On balance, bonds that have a sinking fund are risker than those without such a provision, so sinking fund bonds are issued with higher coupon rates.
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Sinking fund provisions sometimes can work to the detriment of bondholders, and this is most likely to occur if the yields on similar bonds decrease after the bond has been issued.
TrUe....FaLsE
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