Which of the Following Statements Concerning Warrants Is Correct

question 13

Multiple Choice

Which of the following statements concerning warrants is correct?

• A) 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.
• B) 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.
• C) 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.
• D) 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.
• E) 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.

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Definitions:

Cognitive Dissonance

The mental discomfort experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.

Uniform Standards

Consistent and homogenous criteria or requirements that are applied across different units, processes, or entities to ensure quality and compliance.

Performance On-the-job

The extent to which an employee executes their assigned duties and responsibilities effectively within their workplace.

Organizational Citizenship

The voluntary commitment of members to go beyond the required duties, benefiting the organization and its members.