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When debentures are issued as collateral security against any loan then holder of such debentures is entitles to
- a)Interest only on the amount of loan
- b)Interest only on the face value of debentures
- c)Interest both on the amount of the loan and on the debentures
- d)None of the above.
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
When debentures are issued as collateral security against any loan the...
Explanation:
Debentures as collateral security:
When debentures are issued as collateral security against a loan, it means that the debentures are pledged as security for the repayment of the loan. This provides assurance to the lender that if the borrower defaults on the loan, the lender can sell the debentures to recover the outstanding amount.
Interest on collateral security:
In this scenario, the holder of the debentures, who is the lender, is entitled to receive interest on the loan amount and not on the face value of the debentures. The reason for this is that the debentures are not being held for investment or income generation purposes, but rather as a security against the loan.
Interest only on the amount of loan:
The correct answer, option 'A', states that the holder of such debentures is entitled to receive interest only on the amount of the loan. This means that the lender will receive interest payments based on the principal amount of the loan that has been secured by the debentures.
Example:
Let's say a company wants to borrow $100,000 from a bank. To secure the loan, the company issues $100,000 worth of debentures to the bank. The interest rate on the loan is 10% per annum. In this case, the holder of the debentures, which is the bank, will receive interest payments based on the loan amount of $100,000 and not on the face value of the debentures.
Conclusion:
When debentures are issued as collateral security against a loan, the holder of such debentures is entitled to receive interest only on the amount of the loan. This is because the debentures are being held as security and not for investment purposes.
Debentures as collateral security:
When debentures are issued as collateral security against a loan, it means that the debentures are pledged as security for the repayment of the loan. This provides assurance to the lender that if the borrower defaults on the loan, the lender can sell the debentures to recover the outstanding amount.
Interest on collateral security:
In this scenario, the holder of the debentures, who is the lender, is entitled to receive interest on the loan amount and not on the face value of the debentures. The reason for this is that the debentures are not being held for investment or income generation purposes, but rather as a security against the loan.
Interest only on the amount of loan:
The correct answer, option 'A', states that the holder of such debentures is entitled to receive interest only on the amount of the loan. This means that the lender will receive interest payments based on the principal amount of the loan that has been secured by the debentures.
Example:
Let's say a company wants to borrow $100,000 from a bank. To secure the loan, the company issues $100,000 worth of debentures to the bank. The interest rate on the loan is 10% per annum. In this case, the holder of the debentures, which is the bank, will receive interest payments based on the loan amount of $100,000 and not on the face value of the debentures.
Conclusion:
When debentures are issued as collateral security against a loan, the holder of such debentures is entitled to receive interest only on the amount of the loan. This is because the debentures are being held as security and not for investment purposes.
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When debentures are issued as collateral security against any loan then holder of such debentures is entitles toa)Interest only on the amount of loanb)Interest only on the face value of debenturesc)Interest both on the amount of the loan and on the debenturesd)None of the above.Correct answer is option 'A'. Can you explain this answer?
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