$7,1$ point

Which of the following statements is correct?

Sinking funds are devices used to force companies to retire bonds on a scheduled basis wrior to their maturity. Many bond indentures allow the company to acquire bonds for a sinking fund by either purchasing bonds in the market or selecting the bonds to be acquired by a lottery administered by the trustee through a call at face value.

Floating$-$rate debt is advantageous to investors because the interest rate moves up if market rates rise. Since floating$-$rate debt shifts interest rate risk to companies, it offers no advantages to issuers.

You have funds that you want to invest in bonds, and you just noticed in the financial pages of the local newspaper that you can buy a $$1,000$ par value bond for $$800.$ The coupon rate is $10\%($with annual payments$),$ and there are $10$ years before the bond will mature and pay off its $$1,000$ par value. You should buy the bond if your required return on bonds with this risk is $10\%.$

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 except for sinking fund purposes, and both are offered to you at their $$1,000$ par values. However, Bond SF has a sinking fund while Bond NSF does not. Under the sinking fund, the company must call and pay off $5\%$ of the bonds at par each year. The yield curve at the time is upward sloping. The bond'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 than Bond NSF$.$

As a general rule, a company's debentures have lower required interest rates than its mortgage bonds because mortgage bonds are backed by specific assets while debentures are unsecured.