The following examples describe possible features or characteristics of long-term debt: 

1. The debt agreement includes a covenant that requires the debtor to maintain a minimum amount of working capital. 

2. The stated rate of a bond issue is less than the market rate. 

3. The debt is backed by a claim on the debtor's real estate. 

4. The debt agreement includes a covenant that limits the amount of additional debt that the debtor can incur. 

5. The debt matures on a single date in 20 years. 

6. The bond gives the holder the right to convert the debt before maturity. 

7. The debtor arranges for defeasance of the debt. 

8. The debt is a debenture bond. 

Instructions 

a. Match each example in the preceding list to the number below that best describes it: 

1. Increases the riskiness of the long-term debt 

2. Decreases the riskiness of the long-term debt 

3. Does not affect the riskiness of the long-term debt 

b. For a feature or characteristic that increases the riskiness of the long-term debt, discuss the effect of the feature or characteristic on investors' required yield on the long-term debt.