FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com - Page 82

3) Sinking fund provisions sometimes turn out to adversely affect bondholders, and this is most likely to occur if interest rates decline after the bond was issued. 4) Most sinking funds require the issuer to provide funds to a trustee, who holds the money so that it will be available to pay off bondholders when the bonds mature. 5) If interest rates increase after a company has issued bonds with a sinking fund, the company will be less likely to buy bonds on the open market to meet its sinking fund obligation and more likely to call them in at the sinking fund call price. 23. Assume that all interest rates in the economy decline from 10% to 9%. Which of the following bonds would have the largest percentage increase in price? 1. A 10-year bond with a 10 percent coupon. 2. An 8-year bond with a 9 percent coupon. 3. A 10-year zero coupo ۙ H K^YX\ۙ]H MH\[\ۋ H L^YX\ۙ\[[X[\ۈ]HوIKH\ۈ]B[[XZ[^Y[[HۙX]\\ˈHۙ\HZY[›X]\]Hو KXوH[][Y[\ԔPŒKHۙ\\[H[[]HXH[]\[YKYX\][\\]\X[H^KHXHوHۙ[[™X[H^KˈYX\][\\]\[XZ[[[Y Hۙ8&\XHۙHYX\H[H\[]\^K