finance questions - convetible secuirities and warrant?

Question

(1) Convertible securities are relatively unpopular although they offer companies some interesting flexibility. Why do you think convertible securities are used so rarely?

(2) A warrant provides the holder with a right to purchase stock at a predetermined price that is higher than the current market price. Why will a company issue debt with warrants?

Answer 1

1 - Who says it's issued "rarely"? Although they offer some flexibility, they also provide a liability - suppose the stock price skyrockets, and all the convertible bond-holders convert and SELL - what will happen to the price of the stock?

2 - Not ALL warranted are issued at a higher market price, some are issued at or below.
The reason is: it's motivation for an executive to work hard to make the company a success so the price of the stock goes up, THEN they can cash in their warrants or exercise their STOCK OPTIONS (which are similar to warrants). That's why so many executives cook the books - they'll lose out on their money if the stock drops.