(Practice problems: 1-5, 7, 9, 11,13)

payments, plus accumulated interest, must total $100 interest. The the proceeds will be used million at the end of 10 years, fund payments be? Is this to retire the issue. How large must the annual sinking d. What are the annual amount known with certainty, or might it be higher or lower? trusteeship cash requirements for covering bond service costs under the ver's arrangement described in part c? (Note: Interest must be paid on Vancou- rates outstanding bonds but not on bonds that have been retired.) Assume level interest for purposes of answering this question. e. What would have to happen to interest rates to cause the company to buy bonds on the open market rather than call them under the plan where some bonds are retired each year? 7-1 A sinking fund can be set up in one of two ways: The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government and uses the accumulated total to retire the bond issue at maturity. The trustee uses the annual payments to retire a portion of the issue each year, calling a given percentage of the issue by a lottery and paying a specified price per bond or buying bonds on the open market, whichever is cheaper What are the advantages and disadvantages of each procedure from the viewpoint of the firm and the bondholders