Listed below are some provisions that are often contained in bond indentures: Which of the above provisions, each viewed alone, would tend to reduce the yield to maturity investors would otherwise require on a newly issued bond?
A) 1, 2, 3, 4, 5, 6
B) 1, 2, 3, 4, 6
C) 1, 3, 4, 5, 6
D) 1, 3, 4, 6
E) 1, 4, 6

Question

Listed below are some provisions that are often contained in bond indentures:  Which of the above provisions, each viewed alone, would tend to reduce the yield to maturity investors would otherwise require on a newly issued bond?
A) 1, 2, 3, 4, 5, 6 
B) 1, 2, 3, 4, 6 
C) 1, 3, 4, 5, 6 
D) 1, 3, 4, 6 
E) 1, 4, 6

Quizplus · Accepted Answer

Provisions 1, 3, 4, and 6 would tend to reduce the yield to maturity investors would otherwise require on a newly issued bond. These provisions include sinking fund requirement, restriction on dividends/capital expenditures, limitation on the issuance of additional debt, and subordination of the bond issue to other debts. Provision 2 (maintenance of collateral) and provision 5 (requiring the issuer to report financial information regularly) do not directly affect the yield to maturity.

Listed Below Are Some Provisions That Are Often Contained in Bond