SIE practice questionmediumWarrants
A company issues warrants with a strike price above the current stock price. What is the primary reason an investor would purchase a warrant?
- ATo guarantee a below-market purchase price.
- BTo receive regular income like a bond.
- CTo secure voting rights in the company.
- DTo gain the right to buy shares at a favorable price if the stock appreciates.✓ Correct answer
Explanation
Why D — To gain the right to buy shares at a favorable price if the stock appreciates.
A warrant gives the holder the right to buy shares at the exercise price. It can become valuable if the stock appreciates above that price, but it does not provide regular income, voting rights, or a guaranteed below-market purchase at issuance.
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