Question

A warrant is of huge benefit to the warrant holder when the stock rises far above the exercise price.

True

False

Answer 1

Answer: True.

Warrant is a security that gives warrant holder the right, not the obligation to purchase stocks at a certain price before a certain time. Concept is similar to call option but it varies slightly. Call options come with expiry of an year or so but warrants are for longer term.

So, if prices of stock go far above the exercise price of warrant, warrant holder will have huge benefit. Lets say exercise price of stock warrant is 50 $ and stock proce have gone t0 250$, warrant holder will have benefit of 200$ per share.