- CFA Exams
- CFA Level I Exam
- Topic 3. Corporate Issuers
- Learning Module 2. Investors and Other Stakeholders
- Subject 1. Financial Claims of Lenders and Shareholders
CFA Practice Question
Which statement is false?
A. The gains of taking risky projects are potentially unlimited to equityholders.
B. Stockholders have an incentive to take riskier projects than bondholders do.
C. Bondholders can use bond covenants to limit their potential returns.
Explanation: Bond covenants are agreements that obligate the corporation to follow policies that protect the bondholders. They are used to limit the risks, but returns of bondholders.
User Contributed Comments 1
| User | Comment |
|---|---|
| breh | stockholders benefit from corporate gambles, while bondholders benefit from playing it safe. |