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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

A company's shares trade at Rs 500 cum-bonus. It announces a 1:4 bonus issue (one bonus share for every four held). Ignoring other factors, what is the theoretical ex-bonus price?

The theoretical ex-bonus price is Rs 400. A 1:4 bonus turns four shares worth Rs 2,000 into five shares with the same total value, so each share is worth Rs 2,000 divided by five, which is Rs 400.

  1. ARs 400Correct
  2. BRs 375
  3. CRs 450
  4. DRs 500

Explanation

Four shares worth 4 x 500 = Rs 2,000 become five shares after the bonus. Value remains Rs 2,000, so price = 2,000/5 = Rs 400. Rs 375 wrongly uses 1:3 ratio logic of dividing by 5.33 or similar errors; no value is created by a bonus.

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