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Hi
I am trying to understand shares especially bonus shares.it has been mentioned in the video that it does not matter when the bonus was done and that if it was at start of year or end of year, we don’t calculate a weighting.
I have then seen an example for bonus issue and weighting has been completed along with terp and the reciprocal fraction. I don’t follow why this is being done for bonus issue , I understand it being done for rights issue as these are offered at lower than market price, but bonus issue is FREE?
Hi,
If a TERP has been calculated in the answer then there must be a rights issue in the question too.
If you let me know the question that you are looking at I may be able to help.
Thanks
Hi
I will re-check as can’t find the relevant question. My understanding is that if it bonus issue only we don’t weight it, if it’s rights issue we need to work out weighting and then apply the fraction so if it’s 1 for 4 we apply this fraction to the number of shares before the issue i.e. 5/4.
In some cases however it gives the price before and after, when are we supposed to use this price as apposed to the fraction?
Hi
I also don’t understand why for bonus issue that when we compare last yrs price we multiply by price before and divide by price after, in comparison for the rights issue when we compare the reciprocal we multiply by price after and divide by price before? I am not sure why this is being done sorry?
Hi,
You’re getting bonus issues and rights issues totally confused.
You’re talking about the fraction above (5/4) in applying it to a rights issue when that is what you would be applying in a bonus issue.
You then also talk about the fraction using prices applying it to the bonus issue when this is what is applied to the rights issue.
I think you should go back to the very start to get a basic understanding of EPS.
Have you gone through the videos? They have the information required to help.
Thanks
Hi
O.k I will re-check. The fraction is applied when we are calculating the bonus element and we should use the terp price as the denominator and the price before the issue when calculating rights issue
Thanks
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