Bonus shares are the free shares extended to the existing shareholders of a company. The shareholders don’t incur any additional cost. Bonus shares are issued in proportion to the number of shares the shareholders are holding currently.
Formula for calculating Ex-bonus share price:
If the company gives X: Y bonus where X is the number of Bonus shares and Y is the number of shares held by a person.
If P is the bonus price, then
Ex-Bonus Price = P*Y/(Y+X)
Company XYZ has a bonus issue of 1000 XYZ shares on the basis of 2 new shares for one existing share after a rights issue. Rights issue involves 1000 new shares of $1 each in on basis of 1 new XYZ share for every 3 existing shares. Assuming share currently trading at $1.5, calculate ex-bonus price.
The bonus issue is after the right issue. So, let’s calculate the ex-rights price first. Current Market Price ,CMP=$1.5 Rights ratio is 1:3 Assume one has 10 shares worth $1.5 each = $15 Now, ex-rights, one has 15 shares worth $1.4 each = $21 (because rights issue is given at $1 and not $1.5)
Coming to the bonus issue now: Ratio is 2:1 i.e. 2 shares for every 1 held One holds 15 shares now. So, he/she gets 30 bonus shares. Total is 45 shares. The 45 shares are actually worth just $21.