Which of the following is not correct with regard to debentures:

The correct answer is Option (2) → Issued at a discount and redeemable at a discount.

A company may issue debentures at par, at a premium or at a discount, but it can redeem them only at par or at a premium. A discount is possible on issue; there is no such thing as redemption at a discount, because the company cannot repay the holder less than the face value of what it borrowed.

• Option (1) Issued at par and redeemable at par. — A valid term of issue. The holder pays the face value and gets the face value back; this is the simplest of the six situations.

• Option (3) Issued at a premium and redeemable at par. — A valid term of issue. The holder pays more than the face value, and the company repays the face value on maturity.

• Option (4) Issued at a premium and redeemable at a premium. — A valid term of issue. A premium is collected on issue and a premium is paid again on redemption.