What is a sinking fund? Do investors like bonds that contain this feature?

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What is a sinking fund? Do investors like bonds that contain this feature?



Answer: A sinking fund contains funds set aside by the issuer of a bond to pay for the redemption of the bond when it matures. Because a sinking fund increases the likelihood that a firm will have the funds to pay off the bonds as required, investors like the feature. As a result, interest rates are lower on securities with sinking funds.

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