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?

<p>Debenture issuance (C)</p> Signup and view all the answers

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

<p>Company's track record, profitability, and credit worthiness (C)</p> Signup and view all the answers

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

<p>Difference between the face value of the debenture and its purchase price (D)</p> Signup and view all the answers

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

<p>Debentures do not carry voting rights (C)</p> Signup and view all the answers

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

<p>Cumulative preference shares accumulate unpaid dividends, while ZID do not carry an explicit rate of interest (D)</p> Signup and view all the answers

What is the main difference between secured and unsecured debentures?

<p>Secured debentures create a charge on the assets of the company, while unsecured debentures do not have any charge on the company's assets. (A)</p> Signup and view all the answers

What distinguishes registered debentures from bearer debentures?

<p>Registered debentures are recorded in the register of debenture holders, while bearer debentures are not recorded. (A)</p> Signup and view all the answers

What sets convertible debentures apart from non-convertible debentures?

<p>Convertible debentures can be converted into equity shares after a specified period, while non-convertible debentures cannot be converted. (D)</p> Signup and view all the answers

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

<p>Bearer debentures can be transferred by mere delivery, while registered debentures can only be transferred through a regular instrument of transfer. (C)</p> Signup and view all the answers

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