Quiz Ch 07 – T/F Sinking Fund Impact on Bond Equilibrium and Yield
Fundamentals of Financial Management, Concise
Brigham and Houston
09th Edition
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.