Question : Which of the following statements is true?
Option 1: Interest on debentures is payable only when the Company earns profits.
Option 2: Debentures secured by a charge on assets of the company entitle the debenture holders to take possession of those assets even if their payment is made as per terms.
Option 3: Debentures secured by a floating charge on the assets of the company entitle their holders to receive their payment in priority to first charge holders from the sale of such assets.
Option 4: Deep Discount Bonds are issued at a price substantially below the maturity value.
Correct Answer: Deep Discount Bonds are issued at a price substantially below the maturity value.
Solution : Answer = Deep Discount Bonds are issued at a price substantially below the maturity value.
These debentures do not carry a specific rate of interest. In order to compensate the investors such debentures are issued at a substantial discount. The difference between the face value and the issue price is the total amount of interest related to the duration of debentures.
Hence, the correct option is 4.