If a firm issues debt but writes protective and restrictive covenants into the loan contract,then the firm's debt may be issued at a _____ interest rate compared with otherwise similar debt.
A) significantly higher
B) slightly higher
C) equal
D) lower
E) Either significantly higher or slightly higher

Question

Quizplus · Accepted Answer

Protective and restrictive covenants reduce the risk for lenders, making the debt less risky. Therefore, the interest rate on the debt can be lower compared to otherwise similar debt without covenants.

If a Firm Issues Debt but Writes Protective and Restrictive