Question

Listed below are some provisions that are often contained in bond indentures. Which of these provisions, viewed alone, would tend to reduce the yield to maturity that investors would otherwise require on a newly issued bond?

1.	Fixed assets are used as security for a bond.
2.	A given bond is subordinated to other classes of debt.
3.	The bond is not secured.
4.	The bond has a sinking fund.
5.	The bond has a call provision.
6.	The indenture contains covenants that prevent the use of additional debt.

Answers:	a. 1, 3, 4, 6
	b. 1, 3, 4, 5, 6
	c. 1, 4, 6
	d. 1, 2, 3, 4, 6
	e. 1, 2, 3, 4, 5, 6

Answer 1

Options 1st, 4th and 6th are all such options which provide security to the bondholder as

Point 1 is backing the bond with fixed assets, so in this case bondholder in case of default can recover their investment through sale of fixed assets

Point 6 is also favoring the bondholder as it is restricting the issuer to raise more debt thus reducing the probability of default due to excess debt by the corporation.

Point 4 is making the bond a restricted asset of a corporation that was required to set aside money for redeeming or buying back some of its bonds payable

Option C is correct