Question

A dividend of $9\%$ was declared on INR $100$ share selling at certain price.If the rate of return is $7.5\%$.
Calculate:
a) the market value of the share.
b) the amount to be invited to obtain an annual dividend of INR $630$.

Answer 1

$\left(a\right)$

$\Rightarrow$ Dividend $\left(d\right)=9\%$

$\Rightarrow$ Face value $\left(FV\right)=Rs.100$

$\Rightarrow$ Return $\left(r\%\right)=7.5\%$

$\Rightarrow$ $FV\times d\%=MV\times r\%$

$\Rightarrow$ $100\times 9\%=MV\times 7.5\%$

$\Rightarrow$ $100\times \frac{9}{100}=MV\times \frac{7.5}{100}$

$\Rightarrow$ $MV=\frac{9\times 100}{7.5}$

$\Rightarrow$ $MV=Rs.120$

$\therefore$ The market value of the share is $Rs.120$

$\left(b\right)$

The amount to be innvested to obtain an annual dividend of $Rs.630$

$\Rightarrow$ $\frac{630}{r\%}$

$\Rightarrow$ $\frac{630}{7.5\%}$

$\Rightarrow$ $630\times \frac{100}{7.5}$

$\Rightarrow$ $Rs.8400$