The bond may have restrictive covenants in its indenture. Which of the above provisions, each viewed alone, would tend to reduce the yield to maturity investors would otherwise require on a newly issued bond?

Question

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Provisions 1, 3, 4, and 6 would tend to reduce the yield to maturity investors would require. Provision 1, the sinking fund provision, would enhance the credit quality of the bond and make it less risky, thus reducing the required yield. Provision 3, the call provision, would also enhance the credit quality of the bond and make it less risky for investors, reducing their required yield. Provision 4, the requirement for a maintenance covenant, would provide additional protection for bondholders and reduce their required yield. Provision 6, the limitation on additional debt, would reduce the risk of the company taking on too much debt and becoming more risky, thus reducing the required yield.

The Bond May Have Restrictive Covenants in Its Indenture