Ex-Bonus Share

Posted in Finance, Accounting and Economics Terms, Total Reads: 4634
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Definition: Ex-Bonus Share

The share is called as “Ex-bonus” when the purchaser doesn’t get the right to receive the current bonus. The word ‘Ex’ means without.So, Ex-bonus shares exclude recently declared bonus.


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)


Example:

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.

So, the ex-bonus price will be $0.47


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