Quiz Ch 07 – T/F Sinking Fund Impact on Bond Equilibrium and Yield

Fundamentals of Financial Management, Concise

Brigham and Houston

09th Edition

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True or false: Two bonds rated triple B (BBB), both with 20-year maturity, 10% coupons, and $1,000 par values are being compared. Bond SF has a sinking fund requiring a 5% annual call and payoff at par. Bond NSF lacks a sinking fund. Given an upward-sloping yield curve, the bonds' equal prices might not be in equilibrium. Bond SF, with the sinking fund, is expected to carry a higher yield compared to Bond NSF.

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