Q. Consider the following statements:

1. Debentures are generally not backed by any collaterals.
2. Non-Convertible Debentures generally carry higher rates of return than convertible debentures.

Which of the above statements is/are correct?
Answer: Both 1 and 2 are correct
Notes: Debentures typically are unsecured, not backed by collateral but solely by issuer's creditworthiness. Non-Convertible Debentures (NCDs) lack conversion options and generally offer higher interest rates than convertible ones, as they do not provide holders with any equity or ownership stake in the future. Thus, both statements are accurate about the nature and returns associated with debentures.