Question

A sinking fund can be set up in one of two ways. Discuss the advantages and disadvantages of each procedure from the viewpoint of both the firm and its bondholders. Must be an original answer. Please and thank you.

Answer #1

A Sinking Fund can be set up in one of the below two ways:

(1) The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the accumulated total to retire the bond issue at maturity.

(2) The trustee uses the annual payments to retire a portion of the issue each year, either 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.

From the viewpoint of firm, one significant feature in setting up a sinking fund is that normally the bonds of the firm have a superior yield in comparison to government bonds. As a result, high interest is saved by the firm by taking the decision of calling of their bonds instead of the firm might earn by purchasing government bonds.

Investors also have a inclination towards the yearly retirement process if they predict that in future interest rates would increase, but on the other hand if they predict that rates would fall, then in that case they errand the government bond purchases agenda.

Bondholders identify that, under the bond purchase plan of government, every bondholder would get only the specific amount from the insolvency of the sinking fund at the situation of default of the firm. On the other side, under the annual retirement plan, few holders would get the cash advantage whereas some would get only indirectly benefit.

On balance, investors have slight motive for selecting one method over the other, while the method of annual retirement is evidently highly advantageous for the issuing company.

A company borrowed $ 74,500. The company plans to set up a
sinking fund that will pay back the loan at the end of 6 years.
Assuming a rate of 6% compounded semiannually, find the Sinking
Fund of the ordinary annuity. (please make answer clear not
handwriting)

□ A Company has decided to set up a sinking fund to replace an
asset after 5 years. The value of the fund after 5 years must be
Tk. 1,00,000 and the fund is expected to earn interest at the rate
of 7% per annum.
i) What must be the annual payment into the
fund if the payment make at the end of each year?

Smith can repay $300, 000 one of two ways.
? (i) By 25 level annual payments at the end of each year, starting
one year after the
loan is made, at some unknown loan interest rate.
? (ii) By 25 annual interest payments to the lender at an
effective annual interest rate jL = 11% along with 25 level annual
deposits into a sinking fund earning an effective annual interest
rate of jI = 13% (at the end of each...

Two firms examined the
same capital budgeting project which had an IRR of 16%. One firm
accepted the project but the other rejected it. One of the firms
must have made an incorrect decision.
Discuss the validity
of this statement. Be specific.
Can I have original
answer. Thank you

Economists often discuss two ways of thinking about the economy
– 1) Laissez-faire doctrine (opposes government intervention into
the economy beyond a minimum) and 2) Keynesian economics (the
government and private businesses both play important roles in
maintaining a desired economic system). Which economic viewpoint do
you favor, Laissez-faire or Keynesian? Please explain with an
example.

Travis International has a one-time expense of $1.13 million
that must be paid two years from today. The firm can earn 4.2
percent, compounded monthly, on its savings. How much must the firm
save each month to fund this expense if the firm starts investing
equal amounts each month starting at the end of this month?

a)
Two cars are set to race, one can only accelerate at a rate of 2m/s
starting from rest, and the other can only travel at a set speed of
10 m/s. How fast does each car cover 400 m? Which car would cover a
distance of 400 m faster?
b) If both cars from the previous question started from the
same position, at what time would they have the same displacement?
What is the displacement of the vehicles?
c)...

You have a trust fund that was set up by your great uncle which
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birthday. Assume that once you receive these two payments you can
also invest then at a nominal rate of 5.5% to increase your
retirement savings. Assume you still want all of your retirement
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annuity). Calculate the amount you will now need to save...

Electrochemical cells can be used to measure ionic
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immersed in ZnSO4 solution. One solution is created to be exactly
0.500 M, and the potential on its electrode is measured to be 0.075
V higher than the other electrode. What is the concentration of the
other solution? Enter your answer in M.

Two or more projects are mutually exclusive if management
A. can accept one, the other, or neither, but not both
projects.
B. can accept both projects or neither, but not one or the
other.
C. must accept one or the other but not both projects.
D. must accept one or both projects.
Fix Your Car Auto Repair, Inc., has sales of $2,880,000 and cost of
goods sold of $2,140,000. The firm had a beginning inventory of
$243,000 and an ending...

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