The Market Value of a Debenture Is the Amount at Which

question 2

Multiple Choice

The market value of a debenture is the amount at which it would be exchanged in an active, liquid market (its fair value) .When a company raises funds using debentures and the current market interest rate is different to the rate in the debenture deed at issue date, that company normally will receive the:

• A)face amount of the debenture, pay the market rate of interest over the debenture's term and pay the market value of the debenture upon maturity
• B)market value of the debenture, pay the market rate of interest over the debenture's term and pay the face amount of the debenture upon maturity
• C)face amount of the debenture, pay the rate of interest in the deed over the debenture's term and pay the market value of the debenture upon maturity
• D)market value of the debenture, pay the rate of interest in the deed over the debenture's term and pay the face amount of the debenture upon maturity

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Definitions:

Call Contract

An agreement that gives the holder the right, but not the obligation, to buy a specified amount of an underlying asset at a predetermined price within a specific time frame.

Bushels Of Corn

A unit of measure used in the US for trading and valuing corn, with one bushel equivalent to 56 pounds.

Option Contract

A financial derivative that represents a contract sold by one party to another, offering the buyer the right, but not the obligation, to buy (call) or sell (put) a security at an agreed-upon price within a certain period of time.

Forward Contract

An agreement between two entities that is not regulated, outlining the purchase or sale of an asset at a predetermined future date for a price that is decided upon at the current time.