Which of the Following Statements Is FALSE

question 80

Multiple Choice

Which of the following statements is FALSE?

• A)Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds.
• B)If the issuer fails to live up to any covenant, the issuer goes into bankruptcy.
• C)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.
• D)Bond agreements often contain covenants that restrict the ability of management to pay dividends.

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Definitions:

Price Ceiling

A government-imposed limit on the price charged for a product, aimed at preventing prices from rising above a certain level.

Equilibrium Wage

The earnings rate at which the workforce offered balances the workforce demanded.

Binding

In economic terms, refers to a price floor or ceiling that is enforced and has an effect on the market, preventing it from reaching equilibrium.

Price Ceiling

A legally established maximum price for a good or service, aimed at preventing prices from rising too high.