Unit study guide · NISM Series XV
Corporate Actions
7 questions in this unit
What this unit covers
- A company announces a 1:2 bonus issue. An investor owns 600 shares immediately before the entitlement is applied. Ignoring market-price movements, how many shares would the investor hold after receiving the bonus?
- Which statement best describes a rights issue?
- A profitable company uses surplus cash to buy back and extinguish some of its outstanding shares. If net profit is unchanged immediately after the buyback, which mechanical effect is most likely?
- A company has declared a dividend. An investor buys the share on the ex-dividend date. Which statement is generally correct for that declared dividend?
- Which statement most accurately distinguishes a stock split from a bonus issue?
- A conglomerate separates one division into a separately listed company and eligible shareholders receive shares in the new entity according to the approved scheme. This transaction is best described as a:
- A company carries out a 10-for-1 share consolidation: every 10 existing shares of face value ₹1 each become 1 share of face value ₹10. Ignoring fractional issues and market movements, what happens to an investor holding 1,000 shares?
Key ideas
From the practice bank · 1
A company announces a 1:2 bonus issue. An investor owns 600 shares immediately before the entitlement is applied. Ignoring market-price movements, how many shares would the investor hold after receiving the bonus?
A 1:2 bonus issue means one additional share for every two shares held. On 600 existing shares, the investor receives 300 bonus shares and therefore holds 900 shares after the issue. Remember: A bonus issue increases the number of shares held according to the announced ratio. It does not by itself create proportional ownership out of nothing.
Hint Common mistake: Confusing a 1:2 bonus with a 2:1 or 1:1 bonus.
XV-052From the practice bank · 2
Which statement best describes a rights issue?
In a rights issue, eligible existing shareholders receive rights entitlements to subscribe for additional shares in a specified ratio and on stated terms. It is different from a bonus issue because subscription normally requires payment. Remember: Rights issues raise capital by giving eligible existing owners a first opportunity to subscribe according to an entitlement ratio.
Hint Common mistake: Confusing rights shares, which normally require subscription payment, with free bonus shares.
XV-053From the practice bank · 3
A profitable company uses surplus cash to buy back and extinguish some of its outstanding shares. If net profit is unchanged immediately after the buyback, which mechanical effect is most likely?
A buyback reduces the number of outstanding shares when the repurchased shares are extinguished. If net profit is unchanged, earnings are spread over fewer shares, so EPS may mechanically increase. This does not by itself prove that shareholder value has increased. Remember: Buybacks alter capital structure and share count. Assess value creation separately from the mechanical EPS effect.
Hint Common mistake: Assuming a higher post-buyback EPS automatically means the buyback created economic value.
XV-054From the practice bank · 4
A company has declared a dividend. An investor buys the share on the ex-dividend date. Which statement is generally correct for that declared dividend?
When a share trades ex-dividend, a buyer purchasing on the ex-dividend date generally does not acquire entitlement to the dividend that has already gone ex. The market price may adjust, but the price adjustment is not guaranteed to equal the dividend exactly. Remember: The ex-dividend date separates trades that carry the declared dividend entitlement from those that do not.
Hint Common mistake: Assuming the buyer on the ex-date still receives the dividend because the record date may be later.
XV-055From the practice bank · 5
Which statement most accurately distinguishes a stock split from a bonus issue?
A stock split changes the denomination and number of shares by subdividing existing shares, with a proportionate reduction in face value per share. A bonus issue allots additional shares to eligible shareholders in a stated ratio. Neither action by itself changes the operating profit of the business. Remember: Both actions can increase share count, but the corporate mechanics are different.
Hint Common mistake: Treating a bonus issue and stock split as identical merely because both can lower the quoted price per share mechanically.
XV-056From the practice bank · 6
A conglomerate separates one division into a separately listed company and eligible shareholders receive shares in the new entity according to the approved scheme. This transaction is best described as a:
A demerger or spin-off separates a business undertaking from an existing company into another entity under the applicable scheme, often resulting in shareholders holding interests in the separated businesses. Remember: Corporate actions can alter the organisational perimeter of a business, not just the number of shares.
Hint Common mistake: Confusing a separation of business assets with a change in share denomination.
XV-083From the practice bank · 7
A company carries out a 10-for-1 share consolidation: every 10 existing shares of face value ₹1 each become 1 share of face value ₹10. Ignoring fractional issues and market movements, what happens to an investor holding 1,000 shares?
Under a 10-for-1 consolidation, every 10 old shares become one new share. Therefore 1,000 shares become 100 shares. The face value per share rises proportionately, so the aggregate nominal amount represented by the holding is unchanged by the consolidation itself. Remember: Share consolidation reduces share count while increasing denomination per share proportionately.
Hint Common mistake: Reversing consolidation and stock split mechanics.
XV-084