What is a warrant in financial terms?

A warrant in financial terms is essentially a contract that gives the holder the right to purchase shares from a company at a specified price, known as the exercise or strike price, before a predetermined expiration date. This means that the holder of the warrant has the option, but not the obligation, to buy the stock, and this right can be valuable if the company's stock price rises above the exercise price, allowing the holder to buy shares at a lower price than the market value.

Warrants are often issued in conjunction with other securities as a way to make them more attractive to investors, and they can provide significant leverage. Since they can potentially increase in value as the underlying stock price increases, they are appealing to investors looking for growth opportunities.

In contrast, the other options address different financial instruments or concepts that do not encompass the definition of a warrant. For instance, the description of shares without voting rights specifically highlights a class of stock but does not capture the essence of warrants. Similarly, a financial derivative based on a stock index refers to instruments like options or futures contracts linked to stock market indices, while an investment strategy involving multiple securities refers to portfolio diversification practices, neither of which describes a warrant accurately.