For warrants, the exercise price is typically set at a price that is

• A. Higher than the current market price.
• B. Lower than the current market price.
• C. Equal to the market price.
• D. Not related to market price.

Answer: (A)

Warrants are long‑term instruments that give you the right to buy the underlying stock at a fixed price in the future. That exercise price is set above the current market price so the warrant has time value and isn’t exercisable right away. If the strike were at or below the current price, the holder could exercise immediately for a quick, riskless profit, which would reduce the warrant’s value to speculation on future price movement and often lead to immediate dilution for the issuer. By setting the exercise price higher than the current price, the warrant only becomes profitable if the stock rises above that level before expiration, aligning the holder’s incentives with possible future appreciation. So the best answer is higher than the current market price.