Explanation

The reward given to debenture holders is interest. This is because debentures are loans, and lenders receive interest as compensation for lending their money.

Debenture holders are creditors of the company, not owners. They lend money to the company for a fixed period at an agreed interest rate. This interest must be paid regardless of whether the company makes a profit or loss.

Dividends are paid to shareholders as their share of company profits. Premium refers to amounts paid above face value for shares. Profit belongs to the shareholders after all expenses (including debenture interest) are paid.

Interest on debentures is an expense of the company and is deducted before calculating profit. It appears in the profit and loss account, reducing the taxable profit. This makes debentures tax-efficient compared to equity financing.