Rights & Warrants
Both let the holder buy the issuer's stock at a set price: preemptive rights are short-term (weeks), issued to existing shareholders, and priced below the market; warrants are long-term (often years), usually attached to other securities as a sweetener, and priced above the market at issuance.
The exam loves the “which feature, which instrument” swap. The “tell”: a right is exercisable below today’s price, so it has intrinsic value the moment it’s issued, while a warrant starts out-of-the-money and pays off only if the stock climbs. Watch the offering vocabulary too — the oversubscription privilege belongs to existing shareholders (it lets them claim unsubscribed shares), whereas a standby underwriter is the firm that agrees to buy whatever shares the rights holders don’t.
Don’t confuse a warrant with a call option: both let you buy stock at a set price, but a warrant is issued by the company, so exercising it creates new shares and dilutes existing holders, while a call is written by another investor and never dilutes. Neither rights nor warrants pay dividends or carry votes — those belong to the underlying common stock — and unlike convertible preferred (swapped for common with no new cash), exercising costs you cash. Memory hook: Rights are Right now (cheap, quick); warrants make you wait.
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