Which of the Following Statements Concerning Warrants Is CORRECT

question 28

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.

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Definitions:

Top Managers

The president and other top executives of a business, such as the chief executive officer (CEO), chief financial officer (CFO), and chief operations officer (COO), who have overall responsibility for the organization.

Middle Managers

Those members of an organization responsible for the tactical planning that implements the general guidelines established by top management.