because sinking fund provision facilate their orderly retirement , bonds with these provisions are regarded as being so they will have coupon rates than similar bonds without these provisions
Added by Janet S.
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A sinking fund provision is a feature in some bonds that requires the issuer to set aside funds periodically to retire a portion of the debt before maturity. This reduces the risk of default and ensures that the bond will be paid off in an orderly manner. Show more…
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sinking funds are provisions included in bond indentures that require companies to retire bonds on a scheduled basis prior to their final maturity. many indentures allow the company to acquire bonds for sinking fund purposes by either (1) purchasing bonds on the open market and the going market price or (2) selecting the bonds to be called by a lottery administered by the trustee, in which case the price paid is the bond's face value true or false
Nick J.
The Select value of a bond is its stated face value or maturity value, and its coupon interest rate is the stated annual interest rate on the bond. The maturity date is the date on which the par value must be repaid. A select provision gives the issuer the right to redeem the bonds under specified terms prior to their normal maturity date, although not all bonds have this provision. Some bonds have select provisions which require the issuer to systematically retire a portion of the bond issue each year. Because sinking fund provisions facilitate their orderly retirement, bonds with these provisions are regarded as being select, so they will have select coupon rates than similar bonds without these provisions. Bonds can be select-rate bonds with a constant coupon rate over the life of the bond, or they can be select-rate bonds with a coupon rate that varies over time depending on the level of interest rates. Select bonds pay no annual interest but are sold at a select par, thus compensating investors in the form of capital appreciation. An original issue discount (OID) bond is any bond originally offered at a price select par value. Select bonds are exchangeable at the option of the holder for the issuing firm's common stock. Bonds can be issued with warrants giving the holder the option to purchase the firm's stock for a stated price, thereby providing a capital gain if the stock's price rises. Select bonds contain a provision that allows holders to sell them back to the company prior to maturity at a prearranged price. Select bonds pay interest only if the firm has earnings, while an indexed purchasing power bond bases interest payments on an inflation index to protect the holder from inflation. Mortgage bonds are backed by select. First mortgage bonds are senior in priority to claims of second mortgage bonds. Debentures are long-term bonds that are not secured by a mortgage. Subordinated debentures are bonds having claims on assets only after senior debt has been paid in full in the event of liquidation. Select bonds are rated triple B or higher, and many banks and other institutional investors are legally limited to only holding these bonds. In contrast, junk bonds are high-risk, high-yield bonds.
Adi S.
you are considering 2 bonds that will be issued tomorrow. both are rated triple B(BBB) the lowest investment -grade rating, both mature in 20 years. both have a 10% coupon , neither can be called expect for sinking fund purposes, both are offered to you at their 1,000 par value. however bond SFhas a sinking fund while bond NSF does not. under the sinking fund ,the company must call or pay off 5% of the bonds at par each year. the yield curve at the time is upward sloping. the bnd's prices being equal are probably not in equilibrium as bond SF, which has the sinking fund, would generally be expected to have a higher yield tan bond NSF true or false
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