Listed below are some provisions that are often contained in bond indentures.Which of these provisions,viewed alone,would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?
1)Fixed assets are used as security for a bond.
2)A given bond is subordinated to other classes of debt.
3)The bond can be converted into the firm's common stock.
4)The bond has a sinking fund.
5)The bond has a call provision.
6)The indenture contains covenants that restrict the use of additional debt.
A) 1,3,4,6
B) 1,4,6
C) 1,2,3,4,6
D) 1,2,3,4,5,6
E) 1,3,4,5,6

Question

Listed below are some provisions that are often contained in bond indentures.Which of these provisions,viewed alone,would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?
​1)Fixed assets are used as security for a bond.
2)A given bond is subordinated to other classes of debt.
3)The bond can be converted into the firm's common stock.
4)The bond has a sinking fund.
5)The bond has a call provision.
6)The indenture contains covenants that restrict the use of additional debt.
A) 1,3,4,6
B) 1,4,6
C) 1,2,3,4,6
D) 1,2,3,4,5,6
E) 1,3,4,5,6

Quizplus · Accepted Answer

Provisions such as using fixed assets as security (1), offering convertibility into common stock (3), having a sinking fund (4), and containing covenants that restrict additional debt (6) generally make a bond more attractive to investors by reducing their risk, which in turn lowers the yield to maturity they require.

Listed Below Are Some Provisions That Are Often Contained in Bond