A bonus share issue is an offer of free extra shares to existing shareholders. A company may decide to distribute further shares as an alternative to increasing the dividend payout. When a company issues bonus shares, the number of shares held by the investor increases in proportion. For example, 1:1 bonus means the number of shares double. 4:5 bonus means for every 5 shares held by an investor, he/she will get 4 shares. The value of investment remains the same even after a bonus share issue. For example, an investor has 50 shares, the company issues 1:1 bonus. Then the shares by the investor would double and become 100. The price of the shares of that company at that time was Rs. 100. So before bonus issue, · No. of shares = 50 · Share price = Rs. 100 · Value of Investment = Rs. 5,000 And after bonus issue, · No. of shares = 1000 · Share price = Rs. 50 · Value of Investment = Rs. 5,000 This is so because when a bonus share is announced the price of the shares of that company gets redu...
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