Question

Which one of the following might be included in a bond's list of negative covenants?

1) Maintain a current ratio of 1.2 or more
2) Maintain a minimum cash balance of 1.2 million
3) Limit cash dividends to 1 per share or less
4) Maintain a times interest earned ratio of 2 or more
5) Provide audited financial statements in a timely manner

Answer 1

The option that might be included in a bond's list of negative covenants is 'Limit cash dividends to $1 per share or less,' as it helps protect bondholders by ensuring the issuer does not compromise its ability to repay them.

Step-by-step explanation:

Among the options listed, the one that might be included in a bond's list of negative covenants is 'Limit cash dividends to $1 per share or less.' Negative covenants are conditions that prohibit the issuer from undertaking certain actions.

These covenants are designed to protect bondholders by ensuring that the issuing company does not take on excessive risk or compromise its ability to make bond payments. The covenant to limit dividends would prevent the company from returning an excessive amount of cash to shareholders, which could compromise its ability to repay bondholders.