Convertible Bonds vs. Warrants - Meaning & Differences -BBALectures (2024)

FAQs

Convertible Bonds vs. Warrants - Meaning & Differences -BBALectures? ›

Answer and Explanation:

When bondholders exercise conversion rights, the company's debt ratio is reduced because bonds are replaced by stock. The exercise of stock warrants, on the other hand, brings additional funds into the company but leaves the existing debt or preferred stock on the books.

Warrants may be issued by themselves (without the bond part). To exercise a warrant, the investor must pay cash to the firm to get the stock; to convert a CB, the investor just exchanges the CB for stock – no cash is exchanged. Warrants are not callable, most CBs are.

The correct answer is convertible bonds give the investor the option to exchange bonds for shares at a certain price, whereas warrants give the investor the option to buy shares at a certain price.

The major difference between convertible debt and stock warrants is that upon exercise of the warrants. the stock is held by the company for a defined period of time before they are issued to the warrant holder. the holder has to pay a certain amount of cash to obtain the shares.

In finance, a convertible bond, convertible note, or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or cash of equal value.

an official document approved by an authority, esp. a judge, which gives the police permission to do certain things: a search warrant. an arrest warrant.

A call warrant gives the holder the right to buy the stock for the strike price, while a sell warrant gives the holder of the contract the right to sell the shares for that price. The individual is not required to make these transactions. They simply have the right to do so if they choose.

Bench Warrants

A more common type of warrant, a bench warrant is generally issued when a defendant does not show up to civil or criminal court on their scheduled date. Known as a failure to appear, a bench warrant can be issued by a judge when a defendant: Misses a scheduled court date. Does not pay parking fines.

Some of the most common exceptions are searches connected to an arrest, those where the subject consents, and the plain view doctrine.

Why would you issue a convertible bond? ›

Convertible bonds are corporate bonds that can be exchanged for common stock in the issuing company. Companies issue convertible bonds to lower the coupon rate on debt and to delay dilution. A bond's conversion ratio determines how many shares an investor will get for it.

Convertible Debt and Warrants:

For convertible debt, the investor can redeem the bond to receive stock in the company. With warrants, typically an investor can exercise the warrants to purchase shares of the company, typically at a discounted price.

A convertible bond is a fixed-income corporate debt security that yields interest payments but can be converted into a predetermined number of common stock or equity shares.

Answer and Explanation:

Warrants are instruments that give the right to purchase underlying securities at a certain date and price. Convertibles are financial instruments, such as bonds or preferred shares, that give the right to decide to convert securities into equity.

Convertible bonds are issued by the firm while warrants are issued by individual investors. C. Convertible bonds have an active secondary market while there is no secondary market for warrants.

Convertibles offer investors the opportunity for equity participation and maturities that are often shorter than nonconvertible debt. In exchange for these attractive features, companies can usually issue convertibles with lower coupons than comparable nonconvertible debt.

Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond and make them more attractive to potential buyers. Warrants can also be used in private equity deals.