If a Firm Issues Debt but Writes Protective and Restrictive

question 55

Multiple Choice

If a firm issues debt but writes protective and restrictive covenants into the loan contract,then the firm's debt may be issued at a _____ interest rate compared with otherwise similar debt.

• A) significantly higher
• B) slightly higher
• C) equal
• D) lower
• E) Either significantly higher or slightly higher

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Definitions:

Unsystematic Risk

The risk specific to an individual investment or company, which can be mitigated through diversification.

Expected Return

The weighted average of all possible returns from an investment, considering the probabilities of each outcome.

Equal Proportion

A division or allocation in the same or identical fractions, percentages, or portions.

Market Risk

The risk of losses in investments due to factors that affect the overall performance of the financial markets.