Which the following is true of stock purchase warrants?
A) When a firm makes a large issue of debt, the attachment of stock purchase warrants may deteriorate the marketability of the issue.
B) Warrants are similar to conversion features on debt.
C) Suppliers of debt are more likely to require warrants on an issue of debt from an existing corporation than from a new firm.
D) The attachment of warrants increases the required interest rate.

Question

Quizplus · Accepted Answer

Stock purchase warrants are similar to conversion features on debt, as both provide the right to purchase common stock at a specified price. Option A is incorrect because the attachment of stock purchase warrants is often seen as a positive for marketability, as it can make the securities more attractive to investors. Option C is incorrect because creditors are more likely to require warrants from new firms, as they may see them as riskier investments. Option D is incorrect because the attachment of warrants may actually decrease the required interest rate, as it can make the securities more attractive to investors.

Which the Following Is True of Stock Purchase Warrants