An arrangement in which a borrower makes periodic payments to a separate custodial account that is used to repay debt is known as a:

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BlackTom AI · Accepted Answer

The question describes a repayment arrangement where a borrower makes periodic payments into a separate custodial account that is specifically used to repay debt.

Option A: A. Sinking fund. This term precisely matches the described mechanism. A sinking fund is a reserve fund into which borrowers deposit funds over time to accumulate enough to retire a debt at maturity or to meet expected principal obligations.

Since the provided question only includes this single option, there are no additional options to evaluate. Nevertheless, it’s useful to contrast with related concepts: a straight amortization schedule funds principal gradually through regular payments, rather than into a separate custodial account; a collateral fund or escrow might be used to secure other obligations, but the defining feature of a sinking fund is the dedicated accumulation toward debt repayment, separate from interest payments.

In summary, the described arrangement aligns with the concept of a sinking fund, where periodic deposits are earmarked specifically to repay debt at a future date.

33:390:430:90 TREASURY MANAGEMENT Quiz - Chapter 6 - Capital Markets

An arrangement in which a borrower makes periodic payments to a separate custodial account that is used to repay debt is known as a:

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