What is a Warrant?

In business, a warrant is a financial instrument that gives the holder the right to purchase a certain number of shares of a company's stock at a predetermined price within a certain time frame. Warrants can be issued by a company as a way to raise capital, or they can be issued as part of a debt financing arrangement as collateral for a loan. Warrants can also be traded on financial markets, similar to stocks.

Warrants can be attractive to investors because they allow the investor to purchase stock at a discount compared to the current market price. For example, if a company issues a warrant with an exercise price of $50 per share and the current market price of the company's stock is $60 per share, the investor can exercise the warrant to purchase the stock at the lower price of $50 per share.

However, it is important for investors to carefully consider the terms and risks associated with warrants before entering into any transactions involving them. Warrants may have expiration dates, and the value of the warrant may be affected by changes in the market price of the underlying stock. In addition, warrants may be subject to dilution if the company issues additional shares of stock, which can reduce the value of the warrant.

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