A company declares a dividend of 11.2% to all its share-holders. If its Rs 60 share is available in the market at a premium of 25%, how much should Rakesh invest, in buying the shares of this company. in order to have an annual income of Rs 1,680?

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Solution

Nominal value of 1 share = Rs. 60
Market value of 1 share = Rs. 60 + 25% of Rs. 60
= Rs. 60 + Rs. 15 = Rs.75
Let no. of shares purchased = n
Then nominal value of n shares = Rs. (60n)
Dividend% = 11.2%
Dividend = Rs. 1,680
∴ 11.2% of 60n = Rs. 1,680
⟹ $fraction numerator 11.2 over denominator 100 end fraction$ $\times$ 60n = Rs. 1,680
⟹ n = = 250
Then market value of 250 shares = 250 $\times$ 75 = Rs. 18,750

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