Question

In terms of public offerings of bonds, what is an indenture? A) a list of the duties of a trust company representing the bondholders' interests B) a memorandum that must be produced to describe the details of a bond offering C) a formal contract that specifies a firm's obligations to the bondholders D) a schedule of the fees charged by an underwriting company

Answer 1

C) a formal contract that specifies a firm's obligations to the bondholders.

Step-by-step explanation:

In terms of public offerings of bonds, an indenture is a formal contract that specifies a firm's obligations to the bondholders. It is typically a legal and binding contract between a firm (bond issuer) and its bondholders, which provides detailed information on terms and clauses.

The indenture specifies the essential features of a bond, these includes callabilty of bonds, interest payments time, maturity date of the bond, interest calculation method etc.

Hence, in case there's a conflict between the bond issuer and the bondholders; the indenture would be the reference document to be used for conflict resolution.