Question : Questions : Debentures and Financial Instruments
Statement 1: Debentures are always issued at a premium above their face value.
Statement 2: Debentures carry a fixed interest rate.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer: Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Debentures can be issued at various prices, including at par (equal to face value), at a premium (above face value), or at a discount (below face value). The issuance price depends on market conditions, the company's credit rating, and other factors.
Statement 2 is false. Debentures typically carry a fixed interest rate, and debenture holders receive regular interest payments at this specified rate over the life of the debenture. The interest rate is predetermined at the time of issuance and remains constant throughout the debenture's term.
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