Jai Ltd. announced issue of bonus shares in the ratio of 1:3 (i.e., one share for every three shares held). At present the face value of share is ₹10, current market price is ₹621. In addition, it announced split of shar

CS Executive · Capital Markets & Securities Laws · PYQS · December 2015
Jai Ltd. announced issue of bonus shares in the ratio of 1:3 (i.e., one share for every three shares held). At present the face value of share is ₹10, current market price is ₹621. In addition, it announced split of shares by reducing the face value from ₹10 to ₹2. Calculate the share price if all other things remain constant. What would have been the situation if split would have been done before the issue of bonus shares?

Answer & Explanation:

(i) Stock split post Bonus Issue Market value of 3 shares required to be held by shareholder (3 x ₹621) = ₹1,863 Add: Issue price of Bonus share (1x0) = ₹0 Total price of 4 shares = ₹1,863 Stock split from ₹10/- to ₹2/- No. of shares post stock split (4 x 5) = 20 Average price (1863/20) = ₹93.15 (ii) Stock Split before Bonus Issue Market value of 3 shares required to be held by shareholder (3 x ₹621) = ₹1,863 No. of shares post stock split (3x5) = 15 No. of Bonus shares to be received (15/3) = 5 Total price of 20 shares = ₹1,863 Average price (1863/20) = ₹93.15 Thus there would be no change in the situation if the stock split taken place before issue of bonus shares.

Topics: Capital Market Instruments

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