Investments, tenth edition

    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.