Canadian Securities Course (CSC) Level 1 Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Prepare for the Canadian Securities Course Level 1 Exam with our comprehensive study tool. Use flashcards and multiple choice questions to hone your skills. Fully understand each topic with hints and explanations. Get ready to excel in your exam!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

What is a sinking fund and a purchase fund used for in bonds?

To invest in new projects
To repay portions of the bonds for redemption before maturity
To increase the bond issuer's profits
To pay off all bondholders immediately

The correct answer is: To repay portions of the bonds for redemption before maturity

A sinking fund is a designated account that requires the issuer of a bond to set aside money regularly to ensure there are sufficient funds to redeem the bond at or before its maturity. By accumulating these funds over time, the issuer can pay back a portion of the bonds before their maturity date, which effectively reduces the overall debt burden gradually. A purchase fund, on the other hand, is a type of fund specifically used to repurchase bonds in the open market. This allows the issuer to manage their outstanding debt and potentially take advantage of favorable market conditions to buy back their own bonds at a lower price, further aiding in the management of repayment. Together, these funds play a crucial role in financial management for bond issuers, allowing them to reduce the principal outstanding gradually. This is why the role of sinking and purchase funds relates to repaying portions of bonds before maturity, as indicated by the correct answer.