________ place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid.
A)Bond ratings
B)Bond covenants
C)Bond rating agencies
D)Bond exchanges

Question

Quizplus · Accepted Answer

Bond covenants are agreements between the bond issuer and bondholder that place restrictions on the firm's activities, such as limitations on the amount of debt it can issue or requirements to maintain certain financial ratios. This can reduce the risk for bondholders, increasing the likelihood that they will be repaid. Bond ratings (A) and bond rating agencies (C) are related to the assessment of credit risk, but do not in themselves place restrictions on the issuer. Bond exchanges (D) are platforms for trading bonds but do not directly affect the bond issuer's credit risk or ability to repay its debts.

________ Place Some Restrictions on the Firm in Such a Way