Why Do the Issuers of Bonds Not Seek to Minimize

question 36

Multiple Choice

Why do the issuers of bonds not seek to minimize the strength and number of covenants in a bond agreement?

• A) More covenants favor the equity holders that managers work for.
• B) More covenants can increase the flexibility of the company issuing bonds.
• C) More covenants lower the interest rate investors will require to buy the bond.
• D) Less covenants force the company to renegotiate the terms of the bond if they are broken.

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Definitions:

Dollar

The official currency of the United States, also used as a standard monetary unit in many other countries.

Net Exports

One country’s exports to other countries minus its imports from other countries.

Current Account

A component of a country's balance of payments that includes the trade balance, net income from abroad, and net current transfers.

Current Account Deficit

A situation where a country's total imports of goods, services, and transfers are greater than its total exports.