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John Moffat.
John Moffat.-
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Abhinav1608
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I watched the lecture and I had a real world doubt. So, on the announcement of Bonus of 1:1, the market price should not get affected at all because the company is worth the same. But I’ve seen almost all the stocks go up in price on announcement and even reaches double the price!
So, do people not know about how bonus works or am I missing something?
John Moffat
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In theory the share price will not stay the same after a bonus issue. If there is a 1 for 1 bonus issue then shareholders end up with twice as many shares (at no cost to them) and the market value per share will therefore be half what it was before.
In practice, the share price might not be exactly half what it is before because, as explained in my lectures, the share price depends on future expectations. If other factors lead shareholders to expect the future prospects of the company to be better than that will increase the share price above the theoretical new value.
However you will rarely see the share price in practice be much different from (if a 1 for 1 bonus issue) half the price per share that it was before – you will certainly never ever see it double in price!
Maybe you are confusing it with a rights issue.
Abhinav1608
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