The correct answer is      (A.) $2 and $3, respectively

Under Section 18 of the Investment Company Act of 1940, closed-end funds must maintain an asset coverage ratio of at least 200% of senior securities, such as auction-rate preferred shares, and at least 300% of senior bank debt. In other words, for each $1 of preferred stock issued, a fund must have at least $2 in assets, and for each $1 of bank debt, a fund needs at least $3 of assets.

For the income investor, this ratio means a fund is prohibited from declaring or paying a dividend that would put it below the asset coverage ratio. Funds that violate the asset coverage ratio must attempt to deleverage -- sell assets and raise cash to reduce debt.
For example, late last year bond manager PIMCO postponed previously declared dividend payments on about a dozen leveraged closed-end funds, as asset values fell below the required coverage. Over the next few months, the company reduced debt by redeeming its preferred shares and reinstated the dividends. Most of these dividends were reinstated at the previous rate, but a suspension often can signal that a dividend cut is in order if and when the fund continues payments.

That's why investors should tread with caution into any company that has recently suspended dividends. But it doesn't mean you should avoid all leveraged closed-end funds. Asset coverage is just one measure of a fund's income potential at that time. In deciding whether to keep or add a leveraged closed-end fund with adequate asset coverage, you also want to consider other factors that may work in its favor. For example, if leverage is fairly low and the fund holds low-risk assets, the dividend should be secure.

But if calculating ratios is not your cup of tea, don't worry.  StreetAuthority editor Carla Pasternak takes all such measures into account for every fund she covers in the High-Yield Investing  newsletter. In the latest issue, Carla offers not only in-depth advice on what to look for, she offers a blacklist of funds that sport enticingly high yields but have placed their distributions on hold. To learn the names of these funds to avoid, and to learn more about High-Yield Investing, please visit this link.