The Impact of Shareholder Stability on Collective Wealth

D

Among the options provided, the answer that does not change the collective wealth of shareholders is D. All of the following: stock splits, bonus shares, and right shares.

1. Stock splits: A stock split is a corporate action where a company divides its existing shares into multiple shares. For example, in a 2-for-1 stock split, each existing share is split into two new shares. The purpose of a stock split is to increase the number of shares outstanding while proportionally decreasing the share price. Although the number of shares increases, the total value of the shares held by a shareholder remains the same. Therefore, stock splits do not change the collective wealth of shareholders.

2. Bonus shares: Bonus shares, also known as scrip dividends or stock dividends, are additional shares given to existing shareholders free of charge, based on their current shareholdings. For instance, a company may issue one bonus share for every five shares held. While bonus shares increase the number of shares held by each shareholder, they do not alter the overall value of the shareholder's investment. The value of each individual share decreases proportionally with the issuance of bonus shares. Thus, the collective wealth of shareholders remains unaffected.

3. Right shares: Right shares, also known as rights issues, are new shares offered to existing shareholders at a predetermined price in proportion to their current holdings. Shareholders have the option to exercise their rights and purchase the new shares or sell their rights to other investors. The issuance of right shares increases the number of shares outstanding, but it also provides an opportunity for existing shareholders to maintain their proportional ownership in the company. While shareholders may need to invest additional funds to exercise their rights, the overall value of their investment does not change, as the price at which the right shares are offered is adjusted accordingly. Hence, the collective wealth of shareholders remains unaltered.

In conclusion, all three options-stock splits, bonus shares, and right shares-do not change the collective wealth of shareholders. These corporate actions primarily affect the number of shares held by each shareholder but do not impact the overall value of their investment.