Question

if a man invests Rs.26,400 with each firm, how much will be the difference between the annual returns from the two firms.

Answer 1

investment=Rs.26400

For first firm-

Nominal value of 1 share=Rs.100

Market value of 1 share=Rs.120

Dividend=5%

$\therefore$No.of share=$\frac{Investment}{M.Vof1share}=\frac{26400}{120}=220$

Annual Return=No.of share$\times$Div.$\times$N.V of 1 share

$\Rightarrow 220\times \frac{5}{100}\times 100=Rs.1100$

For second firm -

Nominal value of 1 share=Rs.100

Market value of 1 share=Rs.132

Dividend=6%

$\therefore$No.of share=$\frac{Investment}{M.Vof1share}=\frac{26400}{132}=200$

Annual Return=No.of share$\times$Div.$\times$N.V of 1 share

$\Rightarrow 200\times \frac{6}{100}\times 100=Rs.1200$

$\therefore$Difference between the annual returns$=1200-1100=Rs.100$