The Purpose of the Restrictive Debt Covenant That Limits the Distribution

question 44

Multiple Choice

The purpose of the restrictive debt covenant that limits the distribution of profits to shareholders is to ________.

• A) assure the lender that additional borrowing is constrained or may be subordinated to the original loan
• B) limit the amount of fixed-payment obligations
• C) ensure a cash shortage does not cause an inability to meet current obligations
• D) avoid default of payments to bondholders

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Definitions:

Time-Series Data

A sequence of data points collected or recorded at successive time intervals.

Dependent Variable

A variable in an experiment or model whose value depends on the values of one or more independent variables.

Predicting

The act of forecasting future events or trends based on current or historical data analysis.

Systemic Risks

Risks that can cause a collapse of an entire financial system or market, as opposed to risks associated with individual entities.