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as on a security without these
features. Warrants are often attached to debt issues as “sweeteners.” When a firm makes a
large bond issue, the attachment of stock purchase warrants may add to the marketability of the issue and lower the required interest rate. As sweeteners, warrants are similar to conversion features. Often, when a new firm is raising its initial capital, suppliers of debt will require warrants to permit them to share in
whatever success the firm achieves. In addition, established companies sometimes
offer warrants with debt to compensate for risk and thereby lower the interest
rate and/or provide for fewer restrictive covenants. CHAPTER 16 Hybrid and Derivative Securities 691 Exercise Prices
exercise (or option) price
The price at which holders of
warrants can purchase a
specified number of shares of
common stock. The price at which holders of warrants can purchase a specified number of shares
of common stock is normally referred to as the exercise (or option) price. This
price is usually set at 10 to 20 percent above the market price...
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This document was uploaded on 01/19/2014.
- Fall '13