Cumulative Sinking Funds

This chapter elaborates the cumulative sinking funds. The amount that the borrower, usually a company, or corporation of some standing, has to set aside each year to redeem the loan eventually and pay the interest on it in the meantime is called the annual amount for the service of the loan. As the loan holders are usually a large number of people holding amounts of loan differing perhaps between half a million pounds and a hundred pounds, it may not be possible or practicable to apply precisely the amounts set aside for service to paying interest and redeeming those due for redemption. Redemption itself is often carried out in what might appear to be a somewhat haphazard manner, simply by ballot, so that an individual holder of, say, £100 of loan stock, would not know whether he will get his £100 of loan capital repaid this year, next year, sometime, or at the end of the term.