General Securities Sales Supervisor (Series10) Practice Exam

Which feature is NOT part of a Sinking Fund Call?

1. Calls the whole issue at once

2. Allows partial calls at preset dates

3. Random selection of bonds to be called

4. Is funded by reserves from the issuer

The correct answer is: Calls the whole issue at once

The feature that is commonly not part of a Sinking Fund Call is the calling of the entire issue at once. A sinking fund is designed to provide a structured means for an issuer to repay bondholders or redeem bonds over time rather than in a single lump sum. In a sinking fund arrangement, the issuer typically makes periodic payments into the sinking fund, which are then used to redeem a portion of the bonds at specified intervals. This allows for a more manageable repayment process and offers bondholders some security that the issuer is setting aside money to retire the debt. The other options reflect key aspects of a sinking fund call mechanism. Partial calls at preset dates are integral to how sinking funds function, ensuring that a portion of the bonds is redeemed over time. Random selection of bonds to be called varies the risk among bondholders and is often a provision in such agreements, allowing the issuer flexibility in how they choose to redeem bonds. Additionally, the sinking fund is indeed funded by reserves from the issuer, reinforcing their commitment to repay debt as scheduled. Thus, the idea of calling the entire issue at once does not align with the fundamental nature of a sinking fund structure, making it the correct choice here.