Which of the Following Statements Concerning Warrants Is CORRECT

question 19

Multiple Choice

Which of the following statements concerning warrants is CORRECT?

• A) Bonds with warrants and convertible bonds both have option features that their holders can exercise if the underlying stock's price increases. However, if the option is exercised, the issuing company's debt declines if warrants were used but remains the same if it used convertibles.
• B) Warrants are long-term put options that have value because holders can sell the firm's common stock at the exercise price regardless of how low the market price drops.
• C) Warrants are long-term call options that have value because holders can buy the firm's common stock at the exercise price regardless of how high the stock's price has risen.
• D) A firm's investors would generally prefer to see it issue bonds with warrants than straight bonds because the warrants dilute the value of new shareholders, and that value is transferred to existing shareholders.
• E) A drawback to using warrants is that if the firm is very successful, investors will be less likely to exercise the warrants, and this will deprive the firm of receiving any new capital.

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Definitions:

Paying Rent

The process of making periodic payments for the use of property, typically land or buildings, that is owned by another party.

Damaging Premises

Causing harm or destruction to property or buildings.

Temporary Ownership

A condition where an individual or entity has control over property or goods for a limited period.

Landlord-Tenant Relationship

The landlord-tenant relationship is a legal arrangement defining the rights and duties of landlords and tenants in the context of rental property agreements.