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Sir, can you please state the difference between redeemable & irredeemable debt and correct me if I am wrong anywhere?
I know that Redeemable debt has redemption while irredeemable does not have any redemption date? But what exactly this means?
1) In Redeemable debt the company pays fixed interest to debtholders until its redemption (that means the debt will be paid off until the redemption period ends)
2) In irredeemable debt the company has to pay a fixed interest to investors forever (because there is no redemption of debt)?
3) If it is true, then according to this irredeemable debt is riskier than redeemable debt for the company because the company has to pay fixed interest continuously & tax savings on the debt will also be received forever?
Redeemable debt is repaid (redeemed) on a date in the future. Irredeemable debt is never repaid. Are you watching my free lectures?
Interest is paid each year for so long as the debt remains (which in the case of irredeemable debt means that interest is payable each year for ever.
In theory the debt is risk free whether it is redeemable or irredeemable. In practice redeemable debt is more risky for the company because there is the risk that they may not have the funds to repay it when the redemption date comes due.