CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

The main difference between a positive and negative covenant is (are) ______.
A. a positive covenant is one you must not do while a negative covenant must be carried out
B. actions that you must take regularly versus periodically
C. a positive covenant is one you must do while a negative covenant limits actions the firm can take
Explanation: Positive (or affirmative) covenants enumerate what issuers are required to do. Negative covenants prevent the issuer from taking actions that could reduce the ability to make interest payments and repay the principal.

User Contributed Comments 2

User Comment
morek Think of "positive" or "negative" from the perspective of the issuer, not the bondholder.
soorajiyer Yes positive is "must do" and negative is what "must not do"!!
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