NISM Certifications · NISM-Series-XXI-A: Portfolio Management Services (PMS) Distributors · Investing in Stocks (NISM XXI-A)
Which of the following best describes a bonus issue of shares?
A bonus issue gives existing shareholders additional free shares in proportion to their holding, funded by capitalising reserves. The company receives no cash, and the share price adjusts downward after the record date.
- AFresh shares sold to investors for cash at a discount
- BFree additional shares issued to existing shareholders out of reserves, without any cash inflow to the companyCorrect
- CShares bought back from shareholders at a premium
- DDivision of the face value of each share into smaller units
Explanation
A bonus issue capitalises free reserves and distributes extra shares to existing holders in proportion, with no cash received. A stock split instead reduces face value, and a buyback reduces share count.
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