A bond covenant is a part of a bond contract that restricts the behavior of the firm,

Question:

A bond covenant is a part of a bond contract that restricts the behavior of the firm, barring it from taking certain actions. Using the terminology of options, explain why a bond contract might include a covenant preventing the firm from making large payments to its stockholders.

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...