Explanation

Corporations with high uncertainty in their future have higher risks. Investors will require higher returns/interest from a bond issued from these corporations. If the corporation cannot afford such a high interest rate from bond issuance, warrants may be issued along with the bonds to lower the interest rate. The warrants will attract investors to buy the bonds by providing the possibility of equity appreciation in addition to the coupon interest payments.

Sample Response

Corporations issue warrants as part of their fundraising activities to lower the nominal interest on the bonds and invite more investors to buy the securities they will issue along with the warrants.