The bond contract that states the lenders rights and

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35) The bond contract that states the lender’s rights and privileges and the borrower’s obligations is called the A) bond syndicate. B) restrictive covenant. C) bond covenant. D) bond indenture. Answer: D 36) Policies that limit the discretion of managers as a way of protecting bondholders’ interests are called 37) Typically, the interest rate on corporate bonds will be 125 38) Restrictive covenants can 39) (I) Restrictive covenants often limit the amount of dividends that firms can pay the stockholders. (II) Most corporate indentures include a call provision, which states that the issuer has the right to force the holder to sell the bond back. A) (I) is true, (II) false. B) (I) is false, (II) true. C) Both are true. D) Both are false. Answer: C 40) Call provisions will be exercised when 41) A requirement in the bond indenture that the firm pay off a portion of the bond issue each year is called 42) (I) Callable bonds must have a higher yield than comparable noncallable bonds. (II) Convertible bonds are attractive to bondholders and sell for a higher price than comparable nonconvertible bonds. 126
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43) Long-term unsecured bonds that are backed only by the general creditworthiness of the issuer are called A) junk bonds. B) callable bonds. C) convertible bonds. D) debentures. Answer: D 44) Financial guarantees
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