Which of the following statements are correct concerning warrants?
I. Warrants are similar to put options.
II. Warrants are similar to call options.
III. When a warrant is exercised, the issuer is not involved in the transaction.
IV. When a warrant is exercised, the issuer must issue new shares of stock.

Question

Quizplus · Accepted Answer

Statement II is correct as warrants are similar to call options. They give the holder the right, but not the obligation, to buy a specific number of shares of the underlying stock at a fixed price before a specified expiration date. 
Statement IV is also correct as when a warrant is exercised, the issuer must issue new shares of stock. This is because warrants are issued by the company itself and when exercised, the holder can purchase shares directly from the company. 
Statements I and III are incorrect as warrants are not similar to put options (which give the holder the right, but not the obligation, to sell a specific number of shares of the underlying stock at a fixed price before a specified expiration date) and when a warrant is exercised, the issuer is involved in the transaction as they are responsible for issuing the new shares.

Which of the Following Statements Are Correct Concerning Warrants