Warrants 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. Petroxy Oil Co. is issuing new 11-year bonds with 23 warrants attached to each $1,000 par value bond. Petroxy Oil Co. wanted to issue the bonds at par, but a straight-debt bond (without warrants) would have required a 10.20% coupon rate. Instead, the attached warrants allow Petroxy Oil Co. to issue the bonds at par with a 6.12% coupon. Calculate the straight value of the bond and the value of each warrant in the following table. What is the straight value of the bond? What is the value of each warrant? The investment banking firm helping Petroxy Oil Co. issue their bonds with the warrants attached was responsible for estimating the straight-debt value and the value of the warrants. Which was harder for the investment banking firm to estimate accurately? The straight-debt value The value of the warrants