Question 1

The interest rate on which cash payments to debenture holders are based is the:
A)amortisation rate.
B)discount rate.
C)stated rate.
D)market rate.

Accepted Answer

The stated rate, also known as the coupon rate, is the interest rate specified on the debenture that determines the cash payments to debenture holders.

Question 2

Which of the following describes the term maturity date?
A)The date on which the debenture is issued
B)The date on which the debenture is cancelled
C)The date on which each interest payment is made
D)The date on which the principal amount is repaid to the debenture holder

Accepted Answer

The maturity date is the date on which the principal amount of a debenture or bond is repaid to the holder, marking the end of the investment period.

Question 3

Which of the following statements is TRUE about a debenture that is issued at a premium?
A)It will be sold above par.
B)Its interest rate is lower than the prevailing market rate.
C)It will be sold at par.
D)It will repay principal at more than the face value.

Accepted Answer

A debenture issued at a premium is sold above its face value, meaning it is sold above par.

Question 4

Which of the following is the amount the borrower must pay back to the debenture holders?
A)Market value
B)Present value
C)Principal amount
D)Stated interest value

Accepted Answer

The principal amount is the original sum of money borrowed that must be repaid to debenture holders at maturity.

Question 5

If a debenture is issued at a discount, it will sell for more than face value.

Accepted Answer

If a debenture is issued at a discount, it means it is sold for less than face value, not more.

Question 6

Which of the following statements is TRUE about a debenture that is issued at a discount?
A)It will be sold for less than the face value.
B)It will be sold at par.
C)It will repay principal at less than the face value.
D)Its interest rate is higher than the prevailing market rate.

Accepted Answer

A debenture issued at a discount is sold for less than its face value, meaning investors pay less upfront and receive the full face value at maturity.

Question 7

Which of the following describes a secured debenture?
A)A debenture that is not backed by assets
B)A debenture that gives the debenture holder a claim over the issuer's assets if the issuer fails to pay
C)A debenture that matures at one specified time
D)A debenture that repays principal in instalments

Accepted Answer

A secured debenture is backed by the issuer's assets, providing the debenture holder a claim over these assets if the issuer defaults on payment.

Question 8

Which of the following describes a serial debenture?
A)A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay
B)A debenture that is not backed by specific assets
C)A debenture that repays principal in instalments
D)A debenture that matures at one specified time

Accepted Answer

A serial debenture repays the principal in installments over time, rather than at a single maturity date.

Question 9

If debentures with a face value of $100 000 are sold at 88, the amount of cash proceeds is:
A)$88 000.
B)$100 000.
C)$108 800.
D)$99 912.

Accepted Answer

The amount of cash proceeds is equal to the face value of the debentures multiplied by the selling price. In this case, the face value is $100,000 and the selling price is 88% of the face value, or $88,000. Therefore, the amount of cash proceeds is $88,000.

Question 10

Which of the following occurs when a debenture's stated interest rate is higher than the market interest rate?
A)The debenture will be issued at par.
B)The debenture will be issued at a premium.
C)The debenture will be issued at maturity value.
D)The debenture will be issued at a discount.

Accepted Answer

When a debenture's stated interest rate is higher than the market interest rate, it is more attractive to investors, leading it to be issued at a premium.

Question 11

The reason people buy debentures is to:
A)reduce their income taxes.
B)save money.
C)receive dividend payments.
D)earn interest.

Accepted Answer

Debentures are a type of debt instrument that pay interest to the holder, making them attractive to investors seeking regular interest income.

Question 12

The market rate is the rate used to calculate the actual cash payments made to debenture holders.

Accepted Answer

The answer of The market rate is the rate used...

Question 13

If a debenture is issued at a premium, it will sell for more than face value.

Accepted Answer

A debenture issued at a premium means it is sold for more than its face value, reflecting a higher demand or better creditworthiness.

Question 14

Which of the following describes a term debenture?
A)A debenture that gives the debenture holder a claim for specific assets if the issuer fails to pay
B)A debenture that repays principal in instalments
C)A debenture that matures at one specified time
D)A debenture that is not backed by specific assets

Accepted Answer

A term debenture is a type of debt instrument that matures at a specific time, meaning the principal is repaid in full at the end of the term.

Question 15

The issue price of a debenture-whether it is sold at par, premium, or discount-has no effect on the required principal repayment at maturity.

Accepted Answer

The principal repayment at maturity of a debenture is predetermined and unaffected by the issue price at the time of sale (i.e. whether sold at par, premium, or discount). The issue price only affects the interest payments and yield to maturity for the investor.

Question 16

Which of the following occurs when a debenture's stated interest rate is less than the market interest rate?
A)The debenture will be issued at a premium.
B)The debenture will be issued at par.
C)The debenture will be issued at maturity value.
D)The debenture will be issued at a discount.

Accepted Answer

When a debenture's stated interest rate is less than the market interest rate, it is less attractive to investors, so it must be issued at a discount to entice investors to purchase it.

Question 17

Once a debenture has been sold to a debenture holder, it may not be re- sold to other investors, but must be held by the first buyer until maturity.

Accepted Answer

Debentures can be sold to other investors in a process known as secondary market trading. The first buyer is not required to hold the debenture until maturity.

Question 18

Debentures are non- current liabilities issued to multiple lenders, usually in increments of $1 000.

Accepted Answer

Debentures are indeed non-current liabilities that are issued to multiple lenders, usually in increments of $1,000.

Question 19

When a debenture is sold, the selling price is generally equivalent to the present value of the debenture payments.

Accepted Answer

When a debenture is sold, the selling price is generally determined by calculating the present value of its future payments. This is because the buyer of the debenture is essentially paying for the right to receive those future payments, and the value of those payments in today's dollars is determined by discounting them at a certain interest rate.

Question 20

The company will repay the principal amount of the debenture on the maturity date.

Accepted Answer

Debentures are a type of bond that companies issue to raise funds. The principal amount of a debenture is the amount borrowed by the company, which it promises to repay to the debenture holders on the maturity date. Therefore, the statement is true.

Quiz 12: Non-Current Liabilities, Debentures Payable and Classification of Liabilities on the Balance Sheet

The interest rate on which cash payments to debenture holders are based is the:

Which of the following describes the term maturity date?

Which of the following statements is TRUE about a debenture that is issued at a premium?

Which of the following is the amount the borrower must pay back to the debenture holders?

If a debenture is issued at a discount, it will sell for more than face value.

Which of the following statements is TRUE about a debenture that is issued at a discount?

Which of the following describes a secured debenture?

Which of the following describes a serial debenture?

If debentures with a face value of $100 000 are sold at 88, the amount of cash proceeds is:

Which of the following occurs when a debenture's stated interest rate is higher than the market interest rate?

The reason people buy debentures is to: