Answer (C) is correct . Debentures are unsecured bonds. Although no assets are mortgaged as security for the bonds, debentures are secured by the full faith and credit of the issuing firm. Debentures are a general obligation of the borrower. Only companies with the best credit ratings can issue debentures because only the company’s credit rating and reputation secure the bonds.
Answer (A) is incorrect because Debentures must pay interest regardless of earnings levels.
Answer (B) is incorrect because Debentures are not subordinated except to the extent of assets mortgaged against other bond issues. Debentures are a general obligation of the borrower and rank equally with convertible bonds.
Answer (D) is incorrect because Debentures have nothing to do with lease financing. Debentures are not secured by assets.
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