Chapter 24 - Warrants and convertibles

Chapter 24 - Warrants and convertibles - Chapter 24...

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Chapter 24 Warrants and convertibles 24.1 Warrants o warrants - securities that give holders the right , but not the obligation to buy shares of common stock directly from a company at a fixed price for a given period of time o warrants specify the amount of shares, exercise price and expiration date o similar to call options, but longer maturity ; some are even perpetual o sometimes called equity kicker - usually issued in combination with privately held bonds o warrant price depends on same factors as call option, like variance of stock return, time to expiration date, risk-free rate on interest, stock price and exercise price 24.2 The Difference between Warrants and Call Options: The Holder’s Point of View o in contrast to call options, warrants are issued by firms, not by individuals o each time a warrant is exercised a firm must issued new shares, thus the amount of shares outstanding increases o the holder of a warrant makes not as much profit as with a bond because of dilution o
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Chapter 24 - Warrants and convertibles - Chapter 24...

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