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

Question

Quizplus · Accepted Answer

Protective and restrictive covenants reduce the lender's risk by limiting certain actions of the borrower that could undermine the borrower's ability to repay the loan. This reduced risk often allows the borrower to secure a lower interest rate compared to similar debt without such covenants.

If the Firm Issues Debt but Writes Protective and Restrictive