Covenants in a bond contract restrict the actions that management of a firm can take that would benefit the debt holders of the firm at the expense of the equity holders of that firm.

Question

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Covenants in a bond contract are designed to protect the interests of the debt holders by restricting certain actions of the firm that could jeopardize the firm's ability to repay the debt, not to benefit them at the expense of equity holders.

Covenants in a Bond Contract Restrict the Actions That Management