The Value of Corporate Debt with a Sinking-Fund Provision

摘要: A systematic investigation into the effects of sinking-fund provisions is important considering preponderance these in corporate bond indentures. Approximately 80% all publicly traded issues contain a feature amortizing on average more than 50% principal amount issues. Thompson and Norgaard (1967) find proportions to be stable over 1960-67 period. McKeon (1980) reports 78.6% industrial bonds outstanding 1979 contained sinkingfund provision. Furthermore, are particularly common occurrence mediumand low-grade but less prevalent high-grade This relationship most striking utility report that only 30% Aa rated utilities issued 1963 whereas 100% Baa new such provision obligates firm amortize portion debt prior maturity. It gives option satisfy this amortization requirement by either purchasing redeemed from market or calling means call. Thus, Most which provides for periodic retirement proportion issue Retirement may achieved through call at specified price purchases. paper considers value context contingent claims valuation model. concluded sinking fund determined risk underlying firm, initial yield maturity issue, fund's redemption rate. The calculated range parameter values, conditions under valueless determined.