Larry Purcell, an entry-level fixed income analyst at Knowhon & Smeades LLC, was discussing debt covenants with his supervisor, Andy Holzman. During the meeting Purcell made the following statements regarding bond covenants: Statement 1: If a firm violates any of its debt covenants, the company will immediately go into bankruptcy and the creditors of the firm will take over the liquidation of its assets. Statement 2: Debt covenants are important in evaluating a firm’ s credit risk and to better under-stand how the restrictions of the covenants can affect the firm’ s growth prospects and choice of accounting policies. Are statements 1 and 2 .s made by Purcell regarding bond covenants correctStatement 1 Statement 2 ①A. Correct Correct ②B. Incorrect Incorrect ③C. Incorrect Correct
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