In which of the following ways do warrants differ from call options?
I.Warrants impact the firm while call options do not.
II.Call options generally have shorter maturities than warrants.
III.Any profit received from call options is taxable while that from warrants is not taxable.
IV.Volatility increases the value of call options but makes warrants less valuable.
V.The longer maturities of warrants make them less valuable.
A)I, II, and III
B)I, III, and V
C)II, IV, and V
D)I and II

Question

Quizplus · Accepted Answer

I. Warrants do indeed impact the firm because when exercised, new shares are issued by the company, potentially diluting the stock. Call options, on the other hand, are agreements between traders and do not involve the company directly.II. Call options typically have shorter maturities than warrants. Warrants can last for several years, whereas call options usually have maturities up to a year or so.III, IV, and V are incorrect statements. The tax implications of profits from warrants and call options depend on the jurisdiction and specific tax laws, not a fundamental difference between the two. Both warrants and call options increase in value with volatility. The longer maturities of warrants are often seen as an advantage, giving more time for the investment to become profitable, not less valuable.

In Which of the Following Ways Do Warrants Differ from Call