Why Do Bonds Often Include Covenants

question 59

Multiple Choice

Why do bonds often include covenants?

• A)To reduce information asymmetry.
• B)To reduce moral hazard.
• C)To compensate for value-added services.
• D)To ensure repayment of the bond.

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Definitions:

Corporation

A legal entity that is separate and distinct from its owners, providing limited liability to its shareholders, and has the capacity to enter into contracts, sue, and be sued.

White-Collar Criminals

Individuals who commit non-violent, financially motivated crimes, typically involving fraud, embezzlement, or other forms of deceit carried out during professional employment or activities.

Punishment

A penalty imposed for wrongdoing, intended to correct, deter future offenses, and serve as retribution.

Mail Fraud

A criminal act involving the use of postal or electronic mail services to carry out a scam or fraudulent scheme.