CMFAS CM-EIP Equities & Shares question: shareholder of a BONUS (scrip/capitalisation) issue of shares

CMFAS CM-EIPEquities & Shares

What is the effect on a shareholder of a BONUS (scrip/capitalisation) issue of shares?

A New cash is raised from holders and each holder's percentage ownership rises
B Free extra shares; the price falls proportionately and ownership is unchanged
C The shareholder must pay a discounted subscription price for the new shares
D The total value of the holding rises by the value of the free shares received

Show the answer and explanation

Answer: B. Free extra shares; the price falls proportionately and ownership is unchanged

A bonus issue capitalises reserves to give free shares pro-rata; no new cash enters, the same value is spread over more shares so the price falls proportionately, and each holder's percentage ownership is unchanged.

Common mistake

Believing free bonus shares add value; they only redistribute existing value across more shares.

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CMFAS CM-EIP Equities & Shares question: shareholder of a BONUS (scrip/capitalisation) issue of shares

Answer: B. Free extra shares; the price falls proportionately and ownership is unchanged

Common mistake

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CMFAS CM-EIP Equities & Shares question: shareholder of a BONUS (scrip/capitalisation) issue of shares

Answer: B. Free extra shares; the price falls proportionately and ownership is unchanged

Common mistake

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