The primary purpose of bond covenants is to: a. define the bond's repayment terms. b. protect the bond issuer from lawsuits. c. meet regulatory requirements. d. identify the bond's rating. e. protect the bondholders.

Bond covenants are like the rulebook for a financial game! They serve to protect the interests of the bondholders by ensuring that the issuer adheres to certain financial and operational criteria, which can include restrictions on additional borrowing, maintaining certain financial ratios, or preventing asset sales without consent. This safeguards the bondholders against potential risks that could endanger their investment! In the real world, think of bond covenants as a safety net. For instance, if a company wants to issue more debt, bond covenants might prevent it from doing so unless it meets specific financial conditions. This helps ensure that the company remains financially healthy and can continue making interest payments to its bondholders, making it a win-win scenario!