An annual report of a company contained the following paragraph in the notes to the financial statements: The 9 7/8 percent Senior Subordinated Debentures are redeemable at the option of [the company] at 103.635 percent of the principal amount plus accrued interest if redeemed prior to [a certain date], and at decreasing prices thereafter. Mandatory sinking fund payments of USD 3,000,000 (which [the company] may increase to USD 6,000,000 annually)…and are intended to retire, at par plus accrued interest, 75 percent of the issue prior to maturity.
Answer the following questions:
a. What does the term debentures mean?
b. How much is the call premium initially? Does this premium decrease over time?
c. Under what circumstances might the company want to increase the sinking fund payments?