Which of the Following Statements Is FALSE

question 24

Multiple Choice

Which of the following statements is FALSE?

• A) If the issuer fails to live up to any covenant, the issuer goes into bankruptcy.
• B) The stronger the covenants in the bond contract, the less likely the issuer will default on the bond, and so the lower the interest rate investors will require to buy the bond.
• C) Bond agreements often contain covenants that restrict the ability of management to pay dividends.
• D) Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds.