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Bond Warrant

A bond warrant is a financial instrument that gives the holder the right, but not the obligation, to purchase a bond from the issuing company at a specified price before a certain expiration date. Bond warrants are often issued alongside bonds as an added incentive for investors, offering the potential for additional profits if bond prices rise. Unlike options, which are standalone contracts, warrants are often attached to a bond or equity offering.

Example

A company issues a bond with an attached warrant that allows the holder to purchase additional bonds at a fixed price of $1,000 per bond within the next five years. If the market price of the bond rises to $1,200, the warrant holder can exercise the warrant, buy the bond at $1,000, and potentially sell it at the higher market price.

Key points

• A bond warrant gives the holder the right to buy a bond at a specified price before expiration.

• Often issued with bonds as an incentive for investors.

• Provides potential profits if the bond’s market price exceeds the exercise price.

Quick Answers to Curious Questions

It gives the holder the right to purchase a bond at a predetermined price before the warrant expires, potentially allowing for a profit if bond prices rise.

To make their bond offerings more attractive to investors by providing the potential for additional profits.

A bond warrant is often attached to a bond or equity offering, while an option is a standalone contract that gives the right to buy or sell an asset.