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    Question

    A company can raise funds in the nature of owned or

    borrowed capital, through various financial instruments. Which of the following financial instrument enables a company to raise long term borrowed funds while giving the investor an option to convert it into equity? 
    A Preference Shares Correct Answer Incorrect Answer
    B Zero Coupon Bonds Correct Answer Incorrect Answer
    C Commercial Paper Correct Answer Incorrect Answer
    D Convertible Debentures Correct Answer Incorrect Answer
    E Secured Depository Receipts Correct Answer Incorrect Answer

    Solution

    Convertible debentures are hybrid financial instruments (long-term debt with equity features) issued by companies to raise capital, giving the holder the option to convert them into the company's equity shares after a set period.  These instruments act as both a lender and potential part-owner, offering fixed interest plus potential stock appreciation while lowering risk than pure debt. 

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