Warrants are long-term options to buy a stated number of common shares at a specified price that is generally attached to debt issues. Warrants give bond investors the chance to profit from the firm's upside potential, leading some to compare warrants to a long-term call option. However, some factors distinguish warrants from call options. Which of the following statements about their differences is correct? Exercising call options can lead to the dilution of existing shareholders' value. Exercising warrants can lead to the dilution of existing shareholders' value. Sally Rubber Co. is issuing new five-year bonds with 17 warrants attached to each $1,000 par value bond. Sally Rubber Co. wanted to issue the bonds at par, but a straight-debt bond (without warrants) would have required a 11.00% coupon rate. Instead, the attached warrants allow Sally Rubber Co. to issue the bonds at par with a 6.60% coupon. Calculate the straight value of the bond and the value of each warrant in the following table. The consensus opinion of analysts is that Sally Rubber Co. undervalued the warrants that it attached to its bonds. According to the analysts, is the coupon rate on Sally Rubber Co.'s bonds too high or too low? Too low Too high