11. Bond safety is often measured using financial ratio analysis. Bond indentures are another safe-
guard to protect the claims of bondholders. Common indentures specify sinking fund require-
ments, collateralization of the loan, dividend restrictions, and subordination of future debt.
12. Credit default swaps provide insurance against the default of a bond or loan. The swap buyer
pays an annual premium to the swap seller, but collects a payment equal to lost value if the loan
later goes into default.
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