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Definition of Warrant

warrant is a long-term security, which gives the holder the right to purchase the common shares of a corporation for up to 10 years. The warrant’s subscription price is always higher than the price of the underlying common shares when the warrant is initially issued.

Applying "Warrant" to Securities Exams:

Often times a corporate will attach warrants to bonds to make the bond issue more marketable and to lower the interest rate that the company had to pay to investors who purchase the bonds. The warrants in this case act as a sweetener for the bondholders. Warrants will also trade in the market place and may be purchased by investors to take advantage of the long term leverage offered by the warrants long dated expiration.

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