CFA Practice Question
Bond covenants ______
II. may limit dividends or restrict new debt or acquisitions.
III. may require the maintenance of certain financial ratios.
IV. can lead to technical default if provisions are violated.
I. are contract provisions to protect bond investors.
II. may limit dividends or restrict new debt or acquisitions.
III. may require the maintenance of certain financial ratios.
IV. can lead to technical default if provisions are violated.
A. I, II and III
B. II, III and IV
C. I, II, III and IV
Explanation: Covenants are legally enforceable rules that borrowers and lenders agree upon when bonds are issued.
User Contributed Comments 1
| User | Comment |
|---|---|
| ecapocas | I chose B because covenants aren't there to "protect bond holders", they're there because they reduce the cost of capital. |