Karan invests Rs. 18,000 by buying Rs. 100 shares of a company available at a discount of Rs. 10. If the company pays a dividend of 10%, then find the number of shares bought by Karan, and the rate of return on his investment.

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Solution

Total investment = Rs. 18,000
Face value of each share = Rs. 100
The shares are available at a discount of Rs. 10
Market value of each share = 100 - 10 = Rs. 90
Number of shares bought = $\frac{T o t a l i n v e s t m e n t}{M a r k e t v a l u e o f e a c h s h a r e} = \frac{18000}{90} = 200$

Number of shares bought by Karan = 200
Rate of dividend = 10%
His annual income from each share = 10% (100) = Rs. 10
His annual income from 200 shares = 200 (10) = Rs. 2000
The rate of return on his investment = $\frac{A n n u a l i n c o m e}{T o t a l i n v e s t m e n t} (100) = \frac{2000}{18000} (100) = 11 \frac{1}{9}$ %

Therefore,
Karan receives a return of $11 \frac{1}{9}$ % pa on his investment.

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