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Debentures and Credit Rating Quiz

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Questions and Answers

Why are debentures considered an important instrument for raising long term debt capital?

Debentures bear a fixed rate of interest and promise repayment at a future date (correct)

Debenture holders have voting rights in the company

Debentures offer a share in the company's ownership

Debentures provide tax benefits for the company

What is a major limitation of preference shares as a source of business finance?

Preference shares are not suitable for investors seeking higher returns (correct)

Preference shares dilute the claims of debt holders over company assets

Dividend on preference shares is tax deductible

Dividend on preference shares is assured regardless of the company's profit

How often are debenture holders usually paid the fixed stated amount of interest?

Quarterly

Annually

Monthly

Six-monthly (correct)

What term is used to refer to the fact that a company has borrowed a certain amount of money and promises to repay it at a future date?

Debenture issuance Signup and view all the answers

What aspects are considered by a credit rating agency like CRISIL when rating the public issue of debentures?

Company's track record, profitability, and credit worthiness Signup and view all the answers

What is the return to the investor for Zero Interest Debentures (ZID)?

Difference between the face value of the debenture and its purchase price Signup and view all the answers

What is a key advantage of financing through debentures in relation to equity shareholders' control on management?

Debentures do not carry voting rights Signup and view all the answers

What makes cumulative preference shares different from zero interest debentures (ZID)?

Cumulative preference shares accumulate unpaid dividends, while ZID do not carry an explicit rate of interest Signup and view all the answers

What is the main difference between secured and unsecured debentures?

Secured debentures create a charge on the assets of the company, while unsecured debentures do not have any charge on the company's assets. Signup and view all the answers

What distinguishes registered debentures from bearer debentures?

Registered debentures are recorded in the register of debenture holders, while bearer debentures are not recorded. Signup and view all the answers

What sets convertible debentures apart from non-convertible debentures?

Convertible debentures can be converted into equity shares after a specified period, while non-convertible debentures cannot be converted. Signup and view all the answers

How do bearer debentures differ from registered debentures in terms of transferability?

Bearer debentures can be transferred by mere delivery, while registered debentures can only be transferred through a regular instrument of transfer. Signup and view all the answers