Economics Bonds Questions
A bond sinking fund is a provision in a bond agreement that requires the issuer to set aside funds periodically to retire or redeem a portion of the bond issue before its maturity date. The purpose of a sinking fund is to reduce the risk for bondholders by ensuring that there will be sufficient funds available to repay the bondholders when the bonds become due. By setting aside funds regularly, the issuer can accumulate a pool of money that can be used to retire the bonds, either through open market purchases or through a call provision. This helps to mitigate the risk of default and provides investors with more security.