Homework Answers
Solution:
When any company issues bonds and they have to pay the maturity amount in the future then they can use sinking fund. A sinking fund is a special account that a company uses to keep the money to pay the debt whose maturity is in the future. By doing so the company is actually safeguarding from the default.
Who does it benefit?
It benefits investor as well as the company
Company : The company gets higher rating and the burden to pay the debt are less. The demand for the bonds will be more
Investor: The creditworthiness of the company has increased and default risk are low. Higher demand will provide liquidity for the investors
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