The company issues one new free share for every five shares already held by a shareholder. This is called

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Prepare for the QFA Investments Exam 1. Study with flashcards and multiple-choice questions with detailed explanations. Enhance your understanding and succeed on your exam!

Multiple Choice

The company issues one new free share for every five shares already held by a shareholder. This is called

Distributing additional shares to existing shareholders at no cost, in proportion to what they already own, is a bonus issue. This typically uses accumulated reserves or profits to capitalise into new shares, so the total value of the company doesn’t change even though the number of shares increases. Getting one free share for every five held is a classic example of a bonus issue—free stock issued to existing owners in a fixed ratio.

A rights issue would require shareholders to buy new shares, usually at a discount, and a dissolution is winding up the company. The term scrip issue is similar in practice, but the standard label for this free, proportional distribution is bonus issue.

The company issues one new free share for every five shares already held by a shareholder. This is called

Prepare for the QFA Investments Exam 1. Study with flashcards and multiple-choice questions with detailed explanations. Enhance your understanding and succeed on your exam!

The company issues one new free share for every five shares already held by a shareholder. This is called

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