If a Firm Issues Debt and Includes Protective Covenants in the Indenture

question 21

Multiple Choice

If a firm issues debt and includes protective covenants in the indenture then the firm's debt will probably be issued at ________ similar debt without the covenants.

• A)a variable interest rate rather than the fixed rate paid on
• B)a lower interest rate than
• C)a significantly higher interest rate than
• D)an interest rate equal to that of
• E)a slightly higher interest rate than

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Definitions:

Other-Things-Equal Assumption

The assumption that factors other than those being considered are held constant. Also known as the ceteris paribus assumption.

Supply

The total amount of a specific good or service that is available to consumers at current prices.

Excise Tax

A tax imposed on specific goods, services, or activities, such as tobacco, alcohol, and fuel, usually intended to discourage their use or generate revenue.

Demand and Supply

Economic model that determines the price of a good in a market, based on the desire and availability of the good.