MGFC10H3 Chapter 25: Chapter 25 Notes
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25. 2 the difference between warrants and call options. 25. 7 why are warrants and convertibles issued? some differences between convertible bonds and warrants are: 3) the bond ratings of firms using convertibles are lower than those of other firms convertibles tend to be used by smaller firms with high growth rates and more financial leverage convertibles are usually subordinated and unsecured. 25. 9 summary and conclusions: a warrant gives the holder the right to buy shares of common stock at an exercise price for a given period of time. Typically, warrants are issued in a package with privately placed bonds. Afterward, they become detached and trade separately: a convertible bond is a combination of a straight bond and a call option. The holder can give up the bond in exchange for shares of stock: convertible bonds and warrants are like call options. However, there are some important differences: warrants and convertible securities are issued by corporations.