4. Which of the following statements concerning warrants is correct?* Warrants are long-term put options that have value because holders can sell the firm's common stock at the exercise price regardless of how low the market price drops. Warrants are long-term call options that have value because holders can buy the firm's common stock at the exercise price regardless of how high the stock's price has risen. A firm's investors would generally prefer to see it issue bonds with warrants than straight bonds because the warrants dilute the value of new shareholders, and that value is transferred to existing shareholders. Bonds with warrants and convertible bonds both have option features that their holders can exercise if the underlying stock's price increases. However, if the option is exercised, the issuing company's debt declines if warrants were used but remains the same if it used convertibles. 5. The common stock of Southern Airlines is expected to grow at 7% annually. Its expected stock price after 5 years is $47.687. Currently, the firm has 8% convertible debentures (issued at par, or $1,000) that sells for $850. Each debenture can be converted into 25 shares of common stock at any time before 2025. What is the current conversion value of the bond? $707.33 $1,744.56 $1,672.08 $825.00 None of the above