Q1. Larry Purcell, an entry-level fixed income analyst at Knowlton & Smeades LLC, was discussing debt covenants with his supervisor, Andy Holzman. During the meeting Purcell made the following statements regarding bond covenants: Statement 1: If a firm violates any of its debt covenants, the company will immediately go into bankruptcy and the creditors of the firm will take over the liquidation of its assets. Statement 2: Debt covenants are important in evaluating a firm’s credit risk and to better understand how the restrictions of the covenants can affect the firm’s growth prospects and choice of accounting policies. With respect to these statements: A) both are incorrect. B) only one is correct. C) both are correct.
Q2. Which of the following statements regarding bond covenants is least accurate? A) Bond covenants are typically disclosed in the footnotes to the financial statements. B) Bond covenants are important in valuing a firm’s equity including its growth prospects. C) All bond covenants are accounting-based, and affect a firm’s choice of accounting policies.
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发表于 2009-1-19 11:34
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