Consider the following statements about debentures:
1. Debentures are typically issued to raise short-term capital.
2. Debentures are always asset-backed.
Which of the statement(s) given above is/are incorrect?
Both 1 and 2
Neither 1 nor 2
It asks which of the statements is incorrect. Debentures have a more specific purpose than bonds. While both can be used to raise capital, debentures are typically issued to raise short-term capital for upcoming expenses or to pay for expansions. Sometimes called revenue bonds (because they may be expected to be paid for out of the proceeds of a new business project), debentures are never asset-backed, which means that they are not secured by any collateral. Debentures are backed solely by the full faith and credit of the issuer.