Question

uestion 8 Which of the following is true concerning bond covenants? Bond covenants are legal restrictions placed in order to minimize the risk of default on bonds. Bond covenants are restrictions placed on bondholders to protect rights of equity holders. Violation of a bond covenant requires that a company declares bankruptcy If a company violates a bond covenant, it means it has failed to make interest or principal repayments on debt in a timely manner

Answer 1

Option A is correct - Bond Covenants are legal restrictions placed to minimize risk of default.

Remaining options are incorrect because :-

Option B - Bond covenants are restrictions placed to protect interest of bond holders and not "Equity Holders"

Option C - Violation of covenant doesn't require bankruptcy declaration

Option D - Violation of covenant doesn't mean that company has failed to make interest or principal repayments in a timely manner