Almostallconvertiblebondsarecallable 46 46

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Unformatted text preview: today, but it is difficult to predict how much spare cash a company will have in 10 years' time. 43 43 Characteristics of Bond­SF To lessen its risk of being short on cash 10 years from now, the company may create a sinking fund, which is a pool of money set aside for repurchasing a portion of the existing bonds every year. By paying off a portion of its debt each year with the sinking fund, the company will face a much smaller final bill at the end of the 10­year period. Sinking fund provisions usually allow the company to repurchase its bonds periodically and at a specified sinking fund price (usually the bonds' par value). Because of this, companies generally spend the dollars in their sinking funds to repurchase bonds when interest rates have fallen (which means the market price of their existing bonds have risen), as they can repurchase the bonds at the specified sinking fund price, which is lower than the market price. 44 44 Characteristics of Bond­SF There is a limit to how much of the bond issue the company may rep...
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