Question

A warrant is essentially,

Group of answer choices

a promise to not call a bond for X number of years

a company-issued option that can be used as a sweetener on other financial instruments or sold by itself

a firm’s guaranteed return on their preferred stock

allows a firm’s debt to be converted into a number of shares

a promise not to issue debt for a certain period of time

Answer 1

Answer is a company-issued option that can be used as a sweetener on other financial instruments or sold by itself.

Warrants are similar to options that gives right but not an obliation to buy or sell the securities at a specified price and at a predetermined date. Warrants are issued by the company and tends to have much longer period than options that is in years rather than months. Investors receives newly issued shares rather than outstanding shares on the execution of the warrants. Warrants acts as a sweetner to investors as they are attached mostly to bonds or preferred stocks which carries low interest rates or dividends.