Question: Please help with 1 and 2 A sinking fund can be set up in one of two ways: The corporation makes annual payments to the

Please help with 1 and 2

A sinking fund can be set up in one of two ways: The corporation makes annual payments to the trustee, who invests the proceeds in securities (frequently government bonds) and uses the accumulated total to retire the bond issue at maturity. The trustee uses the annual payments to retire a portion of the issue each year, calling a given percentage of the issue by a lottery and paying a specified price per bond or buying bonds on the open market, whichever is cheaper. What are the advantages and disadvantages of each procedure from the viewpoint of the firm and the bondholders? Can the following equation be used to find the value of a bond with N years to maturity that pays interest once a year? Assume that the bond was issued several years ago. V_B = sigma_t=1^N Annual interest/(1 + r_d)^t + Par value/(1 + r_d)^N

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