Which of the following are similarities between the sinking fund and the savings account?
(A) The sinking fund and the savings account are both financial tools.
(B) Both can be used in any emergency.
(C) They both involve setting aside an amount of money for the future.
(D) Both are long-term accounts which can be closed any time.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A) and (C) only
A sinking fund is money set aside regularly, usually with interest, to meet a known expense or liability on a fixed future date (replacing a machine, repaying a loan). A savings account is a bank deposit account where savings are kept and from which money can be withdrawn whenever it is needed.
(A) The sinking fund and the savings account are both financial tools. — Correct. Both are ways of managing and building up money.
(B) Both can be used in any emergency. — Incorrect. A sinking fund is kept for its one planned purpose. Only the savings account is meant to be drawn on at any time.
(C) They both involve setting aside an amount of money for the future. — Correct. Both build up money now for use later.
(D) Both are long-term accounts which can be closed any time. — Incorrect. A sinking fund runs until the date of the liability it is meant to meet, while a savings account has no fixed term. This is not a feature they share.