Question

If a firm issues debt but writes protective and restrictive covenants into the bond indenture, then...

  1. If a firm issues debt but writes protective and restrictive covenants into the bond indenture, then the firm's debt may be issued at a _____ interest rate compared with otherwise similar debt.
    1. significantly higher
    2. slightly higher
    3. equal
    4. lower
    5. either A or B
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer : Correct Option is D. Lower

Reason :

If a firm issues debt but writes protective and restrictive covenants into the bond indenture, then the firm's debt may be issued at a Lower interest rate compared with otherwise similar debt because loan covenant is an agreement which provides the terms and conditions of loan policies between a borrower and a lender. Due to certain restrictions the Lender is not ready to pay higher interest rate therefore organizations have to issue at lower interest rate. However these Loan convents provides protection to the lender.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Which two of the following five statements are correct? Select two alternatives: 1. Convertible debt usually...
Which two of the following five statements are correct? Select two alternatives: 1. Convertible debt usually carries a higher interest rate than other comparable noncovertible debt. 2. Covenants are restrictive clauses in a bond contract that limit the issuer from taking actions that may undercut its ability to repay the bonds. 3. Most debenture issues contain clauses restricting the company from issuing new debt with equal or lower priority than existing debt. 4. A call feature allows the issuer of...
(a) Consider a bond issued 10years ago with an at-issue time to maturity of 30 years....
(a) Consider a bond issued 10years ago with an at-issue time to maturity of 30 years. The bond’s coupon rate is 8 percent and it currently trades in the bond market for 109. Assuming a par value of US$ 1,000, what is the bond’s current time to maturity, semi-annual interest payment, and bond price in dollars (US)? (b). Consider 15-year bond that has a 5.5 percent coupon, paid semi-annually. If the current market interest rate is 6.5 percent and the...
Which of the following statements is FALSE? Select one: a. Senior debt adds protection to investors...
Which of the following statements is FALSE? Select one: a. Senior debt adds protection to investors because senior debt holders have priority in claiming assets in the event of default. b. Stronger covenants imply lower interest rates due to a smaller likelihood of default. c. While call options hurt the investors, sinking fund provisions add protections to the investors. d. Since convertible debt benefits the issuing firm, it comes with higher interest rate (compared to identical bonds without the convertible...
A firm only uses debt and common stock to finance its operation. Its capital structure is...
A firm only uses debt and common stock to finance its operation. Its capital structure is 30% debt and 70% Equity. It reports NI of $1.5 million and interest expense of $300,000. A firm's tax rate is 25%. Given ROA of 12%, what is its BEP? 18.40% 15.56% 25.55% 17.78% (this is incorrect) Which of the following statements is/are INCORRECT? High current ratio may also indicate the firm has too much cash and A/R and these liquid assets generally provide...
(Cost of debt​) Sincere Stationery Corporation needs to raise ​$450,000 to improve its manufacturing plant. It...
(Cost of debt​) Sincere Stationery Corporation needs to raise ​$450,000 to improve its manufacturing plant. It has decided to issue a ​$1,000 par value bond with an annual coupon rate of 15 percent and a maturity of 18 years. The investors require a rate of return of 14 percent. a. Compute the market value of the bonds. b. What will the net price be if flotation costs are 11 percent of the market​ price? c. How many bonds will the...
Olympic Sports has two issues of debt outstanding. One is an 8% coupon bond with a...
Olympic Sports has two issues of debt outstanding. One is an 8% coupon bond with a face value of $36 million, a maturity of 15 years, and a yield to maturity of 9%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 9%. The face value of the issue is $41 million, and the issue sells for 95% of par value. The firm's tax...
A firm issues tenten​-year bonds with a coupon rate of 6.86.8​%, paid semiannually. The credit spread...
A firm issues tenten​-year bonds with a coupon rate of 6.86.8​%, paid semiannually. The credit spread for this​ firm's tenten​-year debt is​ 0.8%. New tenten​-year Treasury notes are being issued at par with a coupon rate of 3.73.7​%. What should the price of the​ firm's outstanding tenten​-year bonds be per​ $100 of face​ value? A. $ 165.70$165.70 B. $ 142.03$142.03 C. $ 94.69$94.69 D. $ 118.36
1. Suppose your firm issues a 4-year corporate bond of $2,000,000 with a coupon interest rate...
1. Suppose your firm issues a 4-year corporate bond of $2,000,000 with a coupon interest rate of 6% per annum. a. If the bond is annual pay, how often does your firm pay interest? b. How much interest do you pay with each "coupon" payment? c. When does your firm repay principal, and how much? 2. a. If the bond is semiannual pay, how often does your firm pay interest? b. How much interest do you pay with each "coupon"...
Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a...
Olympic Sports has two issues of debt outstanding. One is a 7% coupon bond with a face value of $37 million, a maturity of 10 years, and a yield to maturity of 8%. The coupons are paid annually. The other bond issue has a maturity of 15 years, with coupons also paid annually, and a coupon rate of 8%. The face value of the issue is $42 million, and the issue sells for 96% of par value. The firm's tax...
1.....A firm is paying a 4% coupon interest rate for its outstanding bonds. All else constant,...
1.....A firm is paying a 4% coupon interest rate for its outstanding bonds. All else constant, the higher the firm's tax rate: Select one: A. The higher its after-tax cost of debt B. The lower its after-tax cost of debt C. The after-tax cost of debt remains unchanged D. The answer cannot be determined with the information provided 2......Given an optimal capital structure that is 50% debt and 50% common stock, calculate the weighted average cost of capital for stone...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT