 Parents are the securities that give right, not the obligation to the holder to buy a certain number of shares of common stock directly from the issuing company at a fixed price for a certain or given period of time. Each parent specifies three things. The number of shares the holder can buy, the exercise price and the expiration date. Parents are similar to call options. The relationship between the value of a warrant and its stock price is similar to the value of a call option and the stock price. The warrants are also issued with publicly distributed bonds and new shares of common stocks. Warrants might have a higher amount of maturity period even in infinity life. On the screen we can see a diagram that is showing the upper and lower value of warrants to a pair of two vertically upward sloping lines. The value of a warrant lies between these two particular lines. We see a red dotted line from blow to upward within these two parallel upward sloping lines and this line can be explained in a way that the higher of the warrant price above the lower limit depends on certain things like variance of the underlying stock returns, time to expiration date, risk free rate of interest, stock price and the exercise price. Let's see what is the difference between warrants and call options. Call options are issued by individuals whereas warrants are generally issued by corporations. A warrant when exercised allows the firm to issue new shares of common stock and this increases the number of outstanding shares of this particular firm whereas exercising a call option does not affect the outstanding number of shares of the firm. The exercising of a call option allows one investor to gain whereas other investor to lose. The exercising a call option does not flow any type of funds to the firms. Let's see an example how warrants affect the firm value. We have two partners, Gold and Rockfeller who have formed a company incorporating with two stock certificates. So each of them is holding one certificate as a proof of ownership in the firm. They bought six ounces of platinum for $3,000. This means that each ounce of this platinum is cost to the firm at $500. Each person contributing one half of $3,000, so each certificate held by an individual is representing his one half claim to the platinum. Now we assume that platinum is the only asset of this newly formed company. If a call is issued instead of a warrant, then how the firm value will be affected. If let's say that the Gold sells to another investor named as Fiske, a call option issued up issued on his own share. So this call option will give Fiske the right to buy Gold's share for $18 within the next year. Now if the price of the platinum rises above $600 per ounce, this means that the company will worth more than $3,600. So the share will also worth over $1,800. And if Fiske decides to exercise his option under this call, then the Gold must sell his share to Fiske at $800. The effect of this exercise of the call option on the company will be that the number of shares will remain the same. Only the Fiske will be replacing the Gold's ownership in the firm. The company's new owner will be Fiske instead of the Gold's. The price of the platinum if rises to $7 per ounce, the Fiske's gain will be $300 in this particular case. And if the warrant is issued by the firm in case of a call option, then let's see what will be the price of the firm. If Gold does not sell a call option rather the company in a general meeting of the two partners decides to issue and sell warrant to Fiske, then it will be a right to receive a share of the company at an exercise price of $1,800. Then we see that Ms. Fiske's or Fiske's perspective on the warrant will be in the sense that it is still a call option. The exercise price of this warrant and call are the, this call, a warrant and the call are the same. And that is $1,800 as we have seen in our earlier example. The useful for Fiske is to exercise this warrant only when the price of the platinum exceeds $600 per ounce. And if there is the case, then let's see the effect of the exercise of this warrant on the company. It will be an issuance of one new share to the Fiske by the firm. So the ownership will changes. Now there are three members or owners in this particular company. And if price of the platinum rises to $700 per ounce, the Fiske's gain will be equal to $200. So we see that Fiske's gain under call is $300 per ounce whereas under warrant it is $200. Now there is a decline in Fiske's gain of $100 per share. And that decline is termed as a dilution. And this dilution is due to the effect that the number of shares has been increased whereas the profit has been remained the same in total. So individually there is a decline of $100 per share. This is the dilutive effect of issuing a warrant by the firm on its own common stock.