Economics · Banking and Finance

What is the primary objective behind a bank establishing a Sinking Fund for a long-term commercial property loan where the borrower intends to replace the asset at the end of its useful life?

Verified Solution4 OptionsUpdated: October 2026👁️1 View

1To cover the interest rate risk on the floating rate loan.
2To provide immediate funds for emergency repairs and maintenance of the property.
3To systematically accumulate funds for the future replacement or retirement of the asset.✓
4To reduce the property tax liability on the commercial asset.

Correct answer

To systematically accumulate funds for the future replacement or retirement of the asset.

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