1. Security provisions and protective covenants are included in loan documents to increase the likelihood that the interest and principal of outstanding loans will be repaid in a timely fashion. Which of the following is not true about security provisions and protective covenants?

1. Security features include the assignment of payments due under a specific contract to the lender.
2. Negative covenants include limits on the amount of dividends that might be paid
3. Limitations on the amount of working capital that the borrower can maintain.
4. Periodically, financial statements must be sent to lenders.
5. Automatic loan repayment acceleration if the borrower is in default on any loans outstanding

2. Which of the following is not true about junk bonds?

1. Junk bonds are either unrated or rated below investment grade by the credit rating agencies
2. Typically yield about 1-2 percentage points below yields on U.S. Treasury debt of comparable maturities.
3. Junk bonds are commonly used source of permanent financing in LBO transactions
4. During recessions, junk bond default rates often exceed 10%
5. Junk bond default risk on non-investment grade bonds tends to increase the longer the elapsed time since the original issue date of the bonds