Bond Sinking Fund

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Bond Sinking Fund

When a company or governmental unit borrows money that needs to be paid back in several years, they may put a part of what they owe in the bank every year so that when the debt comes due they will have the money.

Let’s a city borrowed $100,000 to be paid back in 10 years. Every year they put $10,000 in the bank. After 10 years they had $100,000 in the bank to pay back the debt. The money growing in the bank, just waiting for repayment day is called a sinking fund.

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