A bond-warrant package:
A) Always increases the risk of the common equity.
B) Always decreases the risk of the common equity.
C) Could either increase or decrease the risk of the common equity.
D) All of the above.

Question

Quizplus · Accepted Answer

A bond-warrant package could increase or decrease the risk of the common equity depending on the specific terms of the package. The issuance of bonds increases the debt obligation of the company and can increase the financial risk for equity holders. Conversely, warrants can provide future dilution to existing equity holders if exercised. Therefore, it is important to analyze the terms of the bond-warrant package to determine the impact on the risk of common equity.

A Bond-Warrant Package