What typically happens each year during the term of an instalment debenture?

What typically happens each year during the term of an instalment debenture?

• A. Part of the bond matures each year
• B. Interest rates change each year
• C. It can be converted to equity
• D. The principal amount increases each year

Answer: (A)

An instalment debenture is a type of bond where the issuer is required to repay the principal in installments over the life of the bond, rather than in a single payment at maturity. This structure provides investors with regular returns of their capital investment at specified intervals. Each year during the term of an instalment debenture, a portion of the principal amount is paid back to the bondholder. This is different from other types of bonds where the principal is paid back only at maturity, allowing for a smoother cash flow for the investor. The ability to receive part of the principal back annually can provide both security and liquidity for investors, making it an attractive option for those looking for a regular return on their investment over time. In contrast, changing interest rates, convertibility to equity, or increasing principal amounts do not reflect the nature of how instalment debentures function. Interest rates fluctuate based on market conditions but do not directly impact instalment payments. Similarly, a conversion feature to equity is not standard for instalment debentures, and the principal does not increase; instead, it is paid down through the planned repayments.

An instalment debenture is a type of bond where the issuer is required to repay the principal in installments over the life of the bond, rather than in a single payment at maturity. This structure provides investors with regular returns of their capital investment at specified intervals.

Each year during the term of an instalment debenture, a portion of the principal amount is paid back to the bondholder. This is different from other types of bonds where the principal is paid back only at maturity, allowing for a smoother cash flow for the investor. The ability to receive part of the principal back annually can provide both security and liquidity for investors, making it an attractive option for those looking for a regular return on their investment over time.

In contrast, changing interest rates, convertibility to equity, or increasing principal amounts do not reflect the nature of how instalment debentures function. Interest rates fluctuate based on market conditions but do not directly impact instalment payments. Similarly, a conversion feature to equity is not standard for instalment debentures, and the principal does not increase; instead, it is paid down through the planned repayments.