Sinking fundsrequire the issuer to redeem a specified portion of the bond issue at regular intervals. This ensures systematic debt reduction and is mandated regardless of market conditions.
Purchase funds, however, allow the issuer to buy back bonds only if they are available in the market at or below a stipulated price, making redemption conditional on market conditions.
B. Sinking funds can redeem bonds only if they trade below a stipulated price: This applies to purchase funds, not sinking funds.
C. Sinking funds involve the issuer determining when bonds are redeemed while purchase funds involve the investor determining when the bonds are redeemed: Investors have no role in determining bond redemption under either method.
D. Sinking funds can redeem the bonds any time while purchase funds follow a prearranged schedule: Sinking funds follow a schedule, and purchase funds rely on market conditions.
[Reference:CSC Volume 1, Chapter 6, "Bond Features – Sinking Funds and Purchase Funds" explains these mechanisms for bond redemption​., ]
Submit