came across Schweser question 68 afternoon exam 3 V1:
Debt covenants to protect bondholders are least likely to
A. restrict issuance of new debt
B. require sinking fund redemptions,
C. prohibit bond repurchases at a premium to par
The answer is C and I don’t quite understand their explanation as to why it wouldn’t be B instead…
Requiring sinking fund redemptions would pay the bondholder faster and it would increase his reinvestment of the bondholder, so that is not a covenant that will protect the bondholder. A debt covenant that requires the repurchase at premium to par will benefit the bondholder so a debt covenant that will protect the bond holder wont prohibit it.
ahh, gotcha…i guess all of this reading is making my eyes weary and my brain numb!!!