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CMA Intermediate · Financial Management and Business Data Analytics · Sources of Finance

Which feature distinguishes a convertible debenture from a non-convertible debenture issued by an Indian company?

A convertible debenture can be exchanged for equity shares, at the holder's option or compulsorily, on terms fixed at issue. A non-convertible debenture remains debt until redeemed. Fixed interest, security and investor type do not distinguish the two.

  1. AIt carries no fixed rate of interest at any time
  2. BThe holder has the option or obligation to exchange it for equity shares as per the terms of issueCorrect
  3. CIt can only be issued to banks and financial institutions
  4. DIt is always secured by a first charge on all fixed assets

Explanation

A convertible debenture is one whose terms allow or require conversion, wholly or partly, into equity shares. Non-convertible debentures stay as debt until redemption. Interest is normally fixed in both cases, and security or investor type does not define convertibility, so the other options are wrong.

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