What happens to the investment if the debentures are redeemed in installments over a period?
Answer & explanation
Correct answer: option 2
When debentures are redeemed in installments over a period, the funds set aside for debenture redemption, often referred to as "Debenture Redemption Investment," are not utilized immediately. Instead, they are carried forward to meet the debenture redemption requirements in the upcoming year(s). This approach ensures that the company has sufficient funds available in the future to redeem the remaining debentures as they mature. It is a prudent financial practice that helps the company fulfill its obligations to debentureholders on time, without the need to secure additional funds each year. The funds are preserved and earmarked for their intended purpose of debenture redemption.