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Until the market price of the stock exceeds the

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Unformatted text preview: of the firm’s stock at the time of issuance. Until the market price of the stock exceeds the exercise price, holders of warrants will not exercise them, because they can purchase the stock more inexpensively in the marketplace. Warrants normally have a life of no more than 10 years, although some have infinite lives. Although, unlike convertible securities, warrants cannot be called, their limited life stimulates holders to exercise them when the exercise price is below the market price of the firm’s stock. Warrant Trading A warrant is usually detachable, which means that the bondholder may sell the warrant without selling the security to which it is attached. Many detachable warrants are listed and actively traded on organized securities exchanges and on the over-the-counter exchange. The majority of actively traded warrants are listed on the American Stock Exchange. Warrants often provide investors with better opportunities for gain (with increased risk) than the underlying common stock. Comparison of Warrants to Rights and Convertibles The similarity...
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