What does the difference between the nominal value and the issue price of 'zero coupon rate debentures' represent?
Answer & explanation
Correct answer: option 3
The correct answer is option 3- It is treated as the amount of interest related to the duration of the debentures.
Zero Coupon Rate debentures do not carry a specific rate of interest. In order to compensate the investors, such debentures are issued at substantial discount and the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures.