CFA Level 1 Question of the Week – Fixed Income

concernedape said:

I never get these right…

Keep working hard! No one said it would be easy.

The correct answer is B.

An affirmative covenant is a type of promise or contract that requires a party adhere to certain terms. Option I is a positive covenant.

A negative covenant restricts a company from engaging in certain actions or, in other words, a promise not to do something. Option II and III are negative covenants. Financial ratios and examples of what the borrower is not allowed to do are both examples of negative covenants.