Which of the Following Statements Is FALSE

question 56

Multiple Choice

Which of the following statements is FALSE?

• A) If a bond issuer fails to live up to any covenant, the issuer goes into bankruptcy immediately.
• B) The stronger the covenants in the bond contract, the less likely an issuer will default on the bond and so the lower the interest rate investors will require to buy the bond.
• C) Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds.
• D) Bond agreements often contain covenants that restrict the ability of management to pay dividends.

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