Consider the following statements about Sinking Fund
1) It is a method of repayment of public debt.
2) It is created by the government out of budgetary revenues every year.
Which of the statements given above is / are correct ?

Only 1

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Only 2

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Both 1 and 2

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Neither 1 nor 2

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Solution

The correct option is A Only 1
A Sinking Fund is a means of repaying debt borrowed through a bond issue through periodic payments to a trustee. The money deposited in the Fund is used to retire preferred stocks and debentures. A Sinking Fund provides additional safeguards to the bond holders.

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