which of the following statement is true of a debenture?
COMMERCE
WAEC 2018
which of the following statement is true of a debenture?
- A. its holders receive interest
- B. it forms part of a company's authorized capital
- C. its owners are co-owners of the company
- D. its owners control the company
Correct Answer: A. its holders receive interest
Explanation
In corporate finance, a debenture is a medium- to long-term debt instrument used by large companies to borrow money, at a fixed rate of interest. The legal term debenture originally referred to a document that either creates a debt or acknowledges it.
A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.
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