Chartered Institute of Stockbrokers (CISI) Professional Practice Exam

Disable ads (and more) with a membership for a one time $2.99 payment

Study for the CISI Professional Exam. Prepare with flashcards and multiple choice questions, each question comes with hints and explanations. Ensure your success!

Each practice test/flash card set has 50 randomly selected questions from a bank of over 500. You'll get a new set of questions each time!

Practice this question and more.

If a company makes a bonus issue on a 4:5 basis, what will existing shareholders receive?

1 share for every 5 that they own
2 shares for every 5 that they own
4 shares for every 5 that they own
5 shares for every 4 that they own

The correct answer is: 4 shares for every 5 that they own

In a bonus issue on a 4:5 basis, it means that for every 5 shares that an existing shareholder holds, they will receive 4 additional shares. This type of corporate action is often used to increase the number of shares in circulation while maintaining the overall value of the company. Shareholders benefit from bonus shares because they effectively increase their total number of shares without having to invest any additional capital. The shareholding percentage remains unchanged, as it is simply a redistribution of retained earnings into share capital. Understanding the mechanics of this bonus issue helps clarify why existing shareholders receive 4 shares for every 5 that they own in this specific scenario.