Characteristics of warrants, Financial Management

Characteristics of Warrants

As mentioned earlier, a warrant is a variant of a call option and gives the holder a certain right to purchase shares of the company at a predetermined price within a certain time limit. But a warrant is different from a call option in the following ways:

  • Investors design call or put options whereas corporates issue warrants.
  • Warrants have longer shelf life (5-10 years) whereas call or put options have much shorter life.
  • Each warrant is different/unique in itself. But call or put options are standardized.

The above mentioned characteristics of warrants provide the opportunity to the investors to purchase them as they can be exercised at a later date in lieu of the shares of the company. The investors expect to receive these shares at a lower price than the market price. This speculative feature increases its investment attractiveness. Moreover, the secondary market of warrants itself adds to the investment opportunity of these instruments. Mostly, warrants are more traded in the secondary market than exercised with an objective of capital gain. Thus the in-built leverage feature existing in the warrants provides an opportunity to the investors to make large gains (also losses) in future.

 

Posted Date: 9/10/2012 8:01:12 AM | Location : United States







Related Discussions:- Characteristics of warrants, Assignment Help, Ask Question on Characteristics of warrants, Get Answer, Expert's Help, Characteristics of warrants Discussions

Write discussion on Characteristics of warrants
Your posts are moderated
Related Questions
The holder of a corporate debt instrument is preferred to equity shareholders in the bankruptcy proceedings. However, secured/senior creditors are preferred to no

How Compound values can be calculated on anannual basis Compound values can be calculated on anannual basis, or on a half-yearly basis or on a monthly basis or on continuous ba

Definition of 'Hedge Fund': An aggressively managed portfolio of investments that uses advanced investment strategies define as leveraged, short, long and derivative positions

We can measure the portfolio duration by calculating the weighted average of the duration of the bonds in the portfolio. The proportion of the portfolio that a se

A brief scenario for each of two different organisations is presented. You are advised to read both scenarios before answering the questions that follow. Use the scenario details t

What are some of the primary advantages when a corporation has operations in countries other than its home country?  What are some of the risks? Foreign operations may decrease a

what is logical process modelling? what is physical modelling?

Using a spreadsheet program or a calculator, solve Tracy’s problem of how often to go to the ATM when the nominal interest rate on her bank account is 10 percent, she spends $30 ea

Q. Problem in the determine of cost of the capital? Conceptual controversies regarding the relationship between the cost of the capital and the capital structure: different the

International bonds are the bonds issued in a country by a non-domestic entity. In fact, it is a collective term used for Eurobonds, foreign bonds and global bonds.