A Debenture Will Be Issued at Par Value

question 34

Multiple Choice

A debenture will be issued at par value:

• A) Because that is the offer price. If the rate offered is too low the offer will be under-subscribed, so those who take it up will receive more interest.
• B) On most occasions, because management is careful to issue the debentures at an amount close to the market rate.
• C) On those rare occasions when the coupon rate is the same as the market rate.
• D) On those occasions when the offer rate is equal to the coupon rate.
• E) None of the given answers.

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Definitions:

Expected Utility

A concept in economics and finance that represents the total utility that an entity expects to gain under uncertain conditions.

Insurance Premium

The sum of money required to be paid by a person or company for obtaining an insurance coverage.

Risk-Averse

A description of an individual or entity that prefers to avoid risk, choosing safer options over potentially higher-reward alternatives.

Marginal Utility

The extra pleasure or benefit a person gains from consuming an additional unit of a product or service.