Question

A man has a choice to invest in hundred rupee shares of two firms at $Rs120$ or at $Rs132.$ The first firm pays a dividend of $5\%$ per annum and the second firm pays a dividend of $6\%$ per annum. Find:
(i) Which company is giving better return?
(ii) If a man invests $Rs26.400$ with each firm, how much will be difference between the annual returns from the two firms?

Answer 1

FIRST COMPANY -

Market value of 1 share $=Rs.120$

Money invested $=Rs.26400$

Number of shares bought $=\frac{26400}{120}$

$=220$

Dividend of 1 share on $Rs.100=5\%$ of $Rs.100=Rs.5$

Dividend of $220$ shares $=220\times 5=Rs.1100$

Annual return $=Rs.1100$

SECOND COMPANY -

Market value of 1 share $=Rs.132$

Money invested $=Rs.26400$

Number of shares bought $=\frac{26400}{132}$

$=200$

Dividend of 1 share on $Rs.100=6\%$ of $Rs.100=Rs.6$

Dividend of $200$ shares $=200\times 6=Rs.1200$

Annual return $=Rs.1200$

a). So, second company is paying better return.

b). Difference in annual return $=1200-1100$

$=Rs.100$

Hence, solved.