A debt contract that specifies that the company can only use the funds to finance certain activities
A) is a private loan.
B) contains a restrictive covenant.
C) increases the problem of adverse selection.
D) all of the above.
E) only A and B of the above.

Question

Quizplus · Accepted Answer

A debt contract that specifies that the company can only use the funds to finance certain activities contains a restrictive covenant. This means that the borrower is limited in how they can use the funds and must adhere to certain conditions outlined in the contract. This is often used to increase the lender's protection and reduce the risk of default.

A Debt Contract That Specifies That the Company Can Only