In the case of the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the debentures.

Zero Coupon Debenture

The correct answer is option 1- Zero Coupon Debenture.

In the case of the difference between the nominal value and the issue price is treated as the amount of interest related to the duration of the Zero Coupon Debenture.

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

• Non-Convertible Debentures are the debentures which cannot be converted into shares or in any other securities. Most debentures issued by companies fall in this category.

• Redeemable debentures are those which are payable on the expiry of the specific period either in lump sum or in instalments during the life time of the company. Debentures can be redeemed either at par or at premium.

• Secured debentures refer to those debentures where a charge is created on the assets of the company for the purpose of payment in case of default. The charge may be fixed or floating. A fixed charge is created on a specific asset whereas a floating charge is on the general assets of the company. The fixed charge is created against those assets which are held by a company for use in operations not meant for sale whereas floating charge involves all assets excluding those assigned to the secured creditors.