Identify the correct term for the following definition: It is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming the bonds or shares.

Scholarship fund

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Sinking fund

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Endowment

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None of these

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Solution

The correct option is C Sinking fund
"It is a part of a bond indenture or preferred stock charter that requires the issuer to regularly set money aside in a separate custodial account for the exclusive purpose of redeeming the bonds or shares." The correct term for these definition is $Sinking fund$ .
A sinking fund is an account that is used to deposit and save money to repay a debt or replace a wasting asset in the future.
In other words, it’s like a savings account that you deposit money in regularly and can only be used for a set purpose.
Private and public corporations often use these funds for bonds.

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