Listed Below Are Some Provisions That Are Often Contained in Bond

question 15

Multiple Choice

Listed below are some provisions that are often contained in bond indentures. Which of these provisions, viewed alone, would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?
1) Fixed assets are used as security for a bond.
2) A given bond is subordinated to other classes of debt.
3) The bond can be converted into the firm's common stock.
4) The bond has a sinking fund.
5) The bond has a call provision.
6) The indenture contains covenants that prevent the use of additional debt.

• A) 1, 3, 4, 6
• B) 1, 4, 6
• C) 1, 2, 3, 4, 6
• D) 1, 2, 3, 4, 5, 6
• E) 1, 3, 4, 5, 6

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Definitions:

Intrinsic Motivation

The drive to perform an activity for its inherent satisfaction or pleasure, rather than for some separable consequence.

Creativity

The ability to generate novel and valuable ideas or solutions to problems.

Rationalization

A compromise mechanism characterized by trying to justify one’s behavior by constructing bogus reasons for it.

Receptivity

The willingness or readiness to accept or be open to ideas, suggestions, or changes.