Economics · Bonds and Debt Instruments
A government entity issues two different types of bonds to finance its long-term infrastructure projects: (I) Sinking Fund Bond: Repays a portion of the face value systematically over the bond's life. (II) Serial Bond: A single issue where the entire principal is repaid at a specific date (Maturity). Which of the following statements accurately contrasts the characteristics of these two debt instruments from the perspective of an investor?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Both statements correctly describe the characteristics of a Sinking Fund Bond and a Serial Bond, where both reduce the debt obligation before the final maturity.
- 2Statement (I) is incorrect as it describes a Callable Bond, and Statement (II) is incorrect as it describes a standard Term Bond.
- 3Statement (I) and Statement (II) are both incorrect as Sinking Fund Bonds require a single lump-sum repayment at maturity, and Serial Bonds are repaid from the beginning.
- 4Statement (I) is correct as Sinking Fund Bonds reduce the principal outstanding, but Statement (II) is incorrect as it describes a Term Bond, not a Serial Bond.✓
Correct answer
Statement (I) is correct as Sinking Fund Bonds reduce the principal outstanding, but Statement (II) is incorrect as it describes a Term Bond, not a Serial Bond.
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