Question

A man buys Rs. 40 shares of a company which pays 10 % dividend. He buys the shares at such a price that his profit is 16% on his investment. At what price did he buy each share ?

Answer 1

Step 1:

Given information:

Dividend on one share$=10\%$

Value of share$=\mathrm{Rs}.40$

Profit$=16\%$

Step 2:

Calculate the price of each share:

Dividend on one share of Rs.40 is computed as,

$\begin{array}{rcl}\mathrm{Dividend}& =& 10\%\mathrm{of}\mathrm{Rs}.40\\ \mathrm{Dividend}& =& \frac{10}{100}\times 40\\ \therefore \mathrm{Dividend}& =& \mathrm{Rs}.4\end{array}$

Let man buy one share of $\mathrm{Rs}.y$.

Profit on one share is,

$\begin{array}{rcl}\mathrm{Profit}& =& 16\%\mathrm{of}y\\ \therefore \mathrm{Profit}& =& \frac{16}{100}y\end{array}$

Since, the dividend paid by the company on one share is Rs.4,

$$\begin{gathered} \therefore \frac{16}{100}y=4 \\ \Rightarrow y=\frac{4\times 100}{16} \\ \Rightarrow y=\mathrm{Rs}.25 \end{gathered}$$

Hence, the man buys each share at $\mathrm{Rs}.25$