Which of the following best describes a negative bond covenant? The issuer is:
A) required to pay taxes as they come due.
B) prohibited from investing in risky projects.
C) required to maintain its current lines of business.

Question

Quizplus · Accepted Answer

A negative bond covenant restricts the issuer from taking certain actions, typically ones that could negatively impact their financial position or ability to repay the bond. Prohibiting investing in risky projects is an example of a negative covenant. Choices A and C describe affirmative covenants, which require the issuer to take certain actions or maintain certain conditions.

Which of the Following Best Describes a Negative Bond Covenant