Debentures are issued at a discount. In which of the following the difference between their nominal value and the issue price is treated as the amount of interest:

Zero Coupon Rate Debentures

The correct answer is option 3- Zero Coupon Rate Debentures.

In Zero Coupon Rate Debentures, the difference between their nominal value and the issue price is treated as the amount of interest.

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. 

OTHER OPTIONS

• Irredeemable debentures are also known as Perpetual Debentures because the company does not give any undertaking for the repayment of money borrowed by issuing such debentures. These debentures are repayable on the winding-up of a company or on the expiry of a long period.

• Specific Coupon Rate Debentures are issued with a predetermined interest rate, known as the coupon rate. This rate can be fixed or floating, with floating rates often tied to the bank rate.

• Convertible debentures can be converted into equity shares or other securities, either at the discretion of the company or the debenture holders. These debentures can be fully or partially convertible.