Question

Classify debentures from the point of view of security.

Hint:

Secured debentures provide lower risk to investors, while unsecured debentures often offer higher interest rates to compensate for the increased risk.

Answer 1

Debentures can be classified from the point of view of security into:
1. Secured or mortgage debentures: These debentures are backed by specific assets of the company as security. If the company defaults, the debenture holders can claim the secured assets.
2. Unsecured or naked debentures: These debentures are not backed by any specific assets. The holders are treated as general creditors of the company.