Which type of debentures are redeemed before any other debentures?a)Unsecured debenturesb)First debenturesc)Non-redeemable debenturesd)Convertible debenturesCorrect answer is option 'B'. Can you explain this answer?

Question

Answer

First debentures are redeemed before any other debentures. They have the highest priority in redemption.

Answer

First Debentures
Debentures are long-term debt instruments issued by corporations to raise funds. When a company issues multiple debentures, the order in which they are redeemed is specified in the terms of the debenture. The debentures that are redeemed before any other debentures are known as the 'first debentures'.

Reason for Redemption
The first debentures are given priority in redemption because they are considered to be the most senior in terms of repayment. This means that in case of liquidation or winding up of the company, the holders of first debentures will be the first ones to receive the repayment of their principal amount.

Security
First debentures are usually secured against specific assets of the company, giving holders a higher level of security in case of default. This security ensures that the holders of first debentures are more likely to receive their repayment compared to holders of other types of debentures.

Investor Preference
Investors are often more inclined to invest in first debentures due to their priority in repayment. This preference for first debentures can make them more attractive to investors, leading to a higher demand for these debentures in the market.
In conclusion, first debentures are redeemed before any other debentures due to their seniority in repayment, security, and investor preference. Companies issue first debentures to attract investors and provide them with a higher level of security and priority in case of repayment.

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