The written agreement between a corporation and its bondholders might contain a prohibition against paying dividends in excess of current earnings.This prohibition is an example of a(n):
A)maintenance of security provision.
B)collateral restriction.
C)aﬃrmative indenture.
D)restrictive covenant.
E)None of the above.

Question

Quizplus · Accepted Answer

The prohibition against paying dividends in excess of current earnings is an example of a restrictive covenant, which is a provision in a bond agreement that restricts certain actions of the borrower. It is included to protect the rights of the bondholders and ensure that the corporation remains financially stable, reducing the risk of default on the bond.

The Written Agreement Between a Corporation and Its Bondholders Might