Question

because a bond is a legal contract, what could happen if a borrower fails to meet their obligation?

the borrower could be required to prepare an offering memorandum.

the lender could then own the bond outright.

the borrower could face bankruptcy proceedings.

the bond could be reevaluated by a rating agency.

Explanation:

• Option 1: Preparing an offering memorandum is for new bond issues, not default. Eliminate.
• Option 2: Lenders don’t own bonds outright due to default (bonds have set terms). Eliminate.
• Option 3: Failing bond obligations (default) can lead to bankruptcy as creditors seek repayment. This matches legal/financial consequences.
• Option 4: Reevaluation by rating agencies is about creditworthiness, not direct default outcome. Eliminate.

Answer:

The borrower could face bankruptcy proceedings.