An investor owns 100 shares of a company trading at Rs. 600 per share (total holding value Rs. 60,000). The company announces a 1:1 Bonus Issue by capitalizing its accumulated free reserves. What are the post-bonus share count, theoretical ex-bonus share price, and total holding value for the investor?

[ A ]200 shares at a price of Rs. 600 per share; total holding value doubles to Rs. 1,20,000.

[ B ]100 shares at a price of Rs. 1,200 per share; total holding value becomes Rs. 1,20,000.

[ C ]200 shares at a theoretical ex-bonus price of Rs. 300 per share; total holding value remains Rs. 60,000.[ CORRECT ]

[ D ]50 shares at a price of Rs. 300 per share; total holding value drops to Rs. 15,000.

Takeaway

Option C is correct: 200 shares at a theoretical ex-bonus price of Rs. 300 per share; total holding value remains Rs. 60,000.

Derivation

A Bonus Issue (capitalization of reserves) transfers accumulated free reserves from retained earnings to share capital without any cash inflow or outflow for the company. In a 1:1 bonus issue, the investor receives 1 free bonus share for every 1 share held, doubling their shareholding to 200 shares (100 original + 100 bonus). Because the company's fundamental economic earnings and net assets remain identical, the market price adjusts theoretically by dividing by the expansion factor (1+1=2): Theoretical Ex-Bonus Price = Rs. 600 / 2 = Rs. 300 per share. Total holding value = 200 * Rs. 300 = Rs. 60,000 (unchanged). This tests bonus issue mathematics. The primary pitfall is believing bonus issues instantly create free corporate cash wealth.

Why the others fail

A — 200 shares at a price of Rs. 600 per share; total holding value doubles to Rs. 1,20,000.

Assuming the share price remains Rs. 600 doubles market cap out of thin air, ignoring the proportional price adjustment.

B — 100 shares at a price of Rs. 1,200 per share; total holding value becomes Rs. 1,20,000.

100 shares at Rs. 1,200 describes a share consolidation, completely contradictory to a 1:1 bonus share allotment.

D — 50 shares at a price of Rs. 300 per share; total holding value drops to Rs. 15,000.

50 shares at Rs. 300 describes a share destruction/reduction, which does not occur during a bonus issue.