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With reference to the Non-Convertible Debenture, consider the following statements:
- It is a long-term financial instrument which acknowledges a debt obligation towards the issuer.
- It gives a higher rate of return compared to convertible debentures.
Which of the statements given above is/are correct?
- a)1 Only
- b)2 Only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
With reference to the Non-Convertible Debenture, consider the followin...
Introduction:
Non-Convertible Debentures (NCDs) are long-term financial instruments that acknowledge a debt obligation towards the issuer. They are a type of debt security issued by companies to raise capital. Unlike convertible debentures, NCDs do not have an option to convert into equity shares of the company. In this context, let's evaluate the given statements.
Analysis of Statements:
Statement 1: It is a long-term financial instrument which acknowledges a debt obligation towards the issuer.
This statement is correct. Non-Convertible Debentures are indeed long-term financial instruments that serve as a form of debt for the issuer. These instruments are issued by companies to raise funds for various purposes such as expansion, working capital, or debt refinancing. NCD holders are creditors to the issuer and are entitled to receive periodic interest payments and the principal amount on maturity.
Statement 2: It gives a higher rate of return compared to convertible debentures.
This statement is also correct. Non-Convertible Debentures generally offer a higher rate of return compared to convertible debentures. Since NCDs cannot be converted into equity shares, investors demand a higher rate of return to compensate for the lack of potential capital appreciation. The rate of return on NCDs is determined by factors such as the credit rating of the issuer, prevailing interest rates, and market demand for such instruments.
Explanation of Correct Answer:
The correct answer is option 'C' - Both 1 and 2. Both statements accurately describe the features of Non-Convertible Debentures. NCDs are long-term debt instruments that acknowledge a debt obligation towards the issuer and provide a higher rate of return compared to convertible debentures.
Conclusion:
Non-Convertible Debentures are significant financial instruments that help companies raise funds while providing investors with a fixed income stream. These instruments are suitable for investors seeking stable returns without the potential equity conversion option.
Non-Convertible Debentures (NCDs) are long-term financial instruments that acknowledge a debt obligation towards the issuer. They are a type of debt security issued by companies to raise capital. Unlike convertible debentures, NCDs do not have an option to convert into equity shares of the company. In this context, let's evaluate the given statements.
Analysis of Statements:
Statement 1: It is a long-term financial instrument which acknowledges a debt obligation towards the issuer.
This statement is correct. Non-Convertible Debentures are indeed long-term financial instruments that serve as a form of debt for the issuer. These instruments are issued by companies to raise funds for various purposes such as expansion, working capital, or debt refinancing. NCD holders are creditors to the issuer and are entitled to receive periodic interest payments and the principal amount on maturity.
Statement 2: It gives a higher rate of return compared to convertible debentures.
This statement is also correct. Non-Convertible Debentures generally offer a higher rate of return compared to convertible debentures. Since NCDs cannot be converted into equity shares, investors demand a higher rate of return to compensate for the lack of potential capital appreciation. The rate of return on NCDs is determined by factors such as the credit rating of the issuer, prevailing interest rates, and market demand for such instruments.
Explanation of Correct Answer:
The correct answer is option 'C' - Both 1 and 2. Both statements accurately describe the features of Non-Convertible Debentures. NCDs are long-term debt instruments that acknowledge a debt obligation towards the issuer and provide a higher rate of return compared to convertible debentures.
Conclusion:
Non-Convertible Debentures are significant financial instruments that help companies raise funds while providing investors with a fixed income stream. These instruments are suitable for investors seeking stable returns without the potential equity conversion option.
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With reference to the Non-Convertible Debenture, consider the following statements: It is a long-term financial instrument which acknowledges a debt obligation towards the issuer. It gives a higher rate of return compared to convertible debentures.Which of the statements given above is/are correct?a)1 Onlyb)2 Onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'C'. Can you explain this answer?
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