Question

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 ?

• A. 18750
• B. 17750
• C. 25000
• D. 21500

Answer 1

Answer: (A)

18750

Nominal value of $1$ share $=Rs.60$

Market value of $1$ share $=Rs.60+25\%ofRs.60=Rs.60+Rs.15=Rs.75$

Let no. of shares purchased $=n$

Then nominal value of $n$ shares $=Rs.\left(60n\right)$

Dividend$\left(\%\right)=11.2\%$

Dividend $=Rs.1680$

$\therefore 11.2\%of60n=Rs.1680$

$\Rightarrow \frac{11.2}{100}\times 60n=1680$

$\Rightarrow n=250$

Then market value of $250$ shares $=250\times 75=Rs.18750$