WordTechGuru Corporation issues bonds with a bond covenant that specifies a stated debt-to-equity ratio range that management must maintain and further requires management to provide financial information to bondholders, including the buying and selling of major assets. Which of these statements is most likely true of the bonds they are issuing?

Question

Quizplus · Accepted Answer

The inclusion of a bond covenant that requires maintaining a specific debt-to-equity ratio and mandates the provision of financial information to bondholders makes the bonds less risky. This is because such covenants provide bondholders with additional security and oversight, ensuring that the company maintains a certain level of financial stability and transparency. As a result, these bonds are considered less risky and typically offer a lower interest rate compared to bonds without such covenants.

WordTechGuru Corporation Issues Bonds with a Bond Covenant That Specifies