Merits and drawbacks associated with Equity warrants

Question

Write down the merits and drawbacks associated with Equity warrants?

Answer 1

The merits of equity warrants are illustrated below:-

i.) throughout this warrant a holder can purchase and sell the shares and securities in the market.

ii.) Prices of such warrants are low so the leverage and the gearing that it provides are high.

iii.) Due to such prices there are larger capital gains and losses.

iv.) Such warrants can offer gains and shelter in the market.

The drawbacks of it are illustrated below:-

i) The high price of gearing and leverage of warrants is not better for investors as they have to take more losses then gains as the percentage of loss of the warrant raises.

ii) The risk that is involved with the value of the certificate that will be provided is that the certificate value can drop to zero due to that the warrant might lose the redemption value.

iii) Holder cannot have the view in voting, shareholding and dividend rights. Consequently the holder becomes isolated in whole functioning of the company however the holder is affected by the decisions that will be made by the company.