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
Securities Exchange Act of 1934 With this Act, the Congress created the Securities and Exchange Commission. The Act empowers the SEC with broad authority over all aspects of th

What are the disadvantages and advantages of Foreign direct investment (FDI) like opposed to a licensing agreement with a foreign partner? Answer:  The major advantage of FDI (

If the issuer company is taken over, then the bondholders are likely to suffer. It is due to lowering of the stock prices in the market as a post takeover effect.

This case provides the opportunity to match financing alternatives with the needs of different companies. It allows the reader to demonstrate a familiarity with different types of

Finance companies Finance companies make loans to individuals as well as corporations by providing consumer lending business lending also mortgage financing. A few of their loa

SCL Limited a highly profitable company is engaged in the manufacture of power intensive products.

Determine about the Zero Interest Bonds (ZIBs) Very much alike DDBs, only crucial difference is that these are issued at face values (DDBs are issued at a discount to face valu

Q. Selection of a project in Financial Management ? The selection of a project is typically made on the following line: (i) In general a project becomes acceptable if it has

Determine about the risk management systems Management must report to board their review and implementation of internal controls and risk management systems. The board must rev

I have an assignment due today and needs some help