Which of the following describes debentures?

Debentures are a type of long-term financial instrument used by companies to raise capital. They represent loans made to the company, whereby the company is obligated to pay back the principal amount along with interest at a predetermined rate. This characteristic highlights the fundamental nature of debentures as debt instruments rather than equity.

The correct answer reflects that when investors purchase debentures, they are essentially providing a loan to the company, which must be repaid at a specified date in the future, along with the agreed-upon interest payments. This structure allows companies to secure funding without diluting ownership, as debenture holders do not obtain any ownership stake in the company like shareholders do.

In contrast, other choices describe different financial instruments or characteristics:

• Ownership in a company is represented by stocks or shares, not debentures.

• The duration and interest rate of debentures are typically fixed over longer periods, rather than being issued for short periods at variable interest rates.

• While it's true that debentures do not grant dividends, this aspect is more a characteristic of equity through stocks than a defining feature of debentures themselves.