Which of the Following Statements Concerning Warrants Is Most CORRECT

question 21

Multiple Choice

Which of the following statements concerning warrants is most 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 are used but remains the same if convertibles are used.
• 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 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:

Management Perspective

The viewpoint or approach taken by managers and leaders within an organization regarding how to effectively run the company and manage its employees.

Strikes And Conflicts

Work stoppages or disagreements between employees and employers over issues related to working conditions, pay, benefits, and rights.

Industrial Relations Perspective

A viewpoint focusing on the study and management of employer-employee relationships, particularly emphasizing aspects like collective bargaining, labor rights, and workplace disputes.

Workplace Conflict

A scenario in which disagreements or disputes arise among employees or between employees and management within a workplace.