A warrant is an option that is typically issued and sold by the firm itself, not by a shareholder. It gives the holder the right to purchase a specified number of shares at a predetermined price within a specified time period. When the warrant is exercised, the firm issues new shares of stock. Therefore, choice C is the best answer.

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A Warrant

Question 350

Multiple Choice

A warrant:

A) Is a put option on the assets of a ﬁrm.
B) Obligates its holder to purchase a stated number of shares of stock at a stated price on or before a stated date.
C) Requires the ﬁrm to issue new shares of stock when it is exercised.
D) Is issued by a shareholder.
E) Generally has a shorter life than either a call option or a put option.

Correct Answer: