If a firm issues debt and includes protective covenants in the indenture then the firm's debt will probably be issued at ________ similar debt without the covenants.
A)a variable interest rate rather than the fixed rate paid on
B)a lower interest rate than
C)a significantly higher interest rate than
D)an interest rate equal to that of
E)a slightly higher interest rate than

Question

Quizplus · Accepted Answer

Protective covenants are added to the terms of a debt agreement to provide additional security to lenders by restricting certain activities of the borrower. These covenants can reduce the risk perceived by the lenders, which can lead to a lower interest rate for the debt issued compared to similar debt without such covenants.

If a Firm Issues Debt and Includes Protective Covenants in the Indenture