Question

Mr.Amol purchased 50 shares of Face Value Rs100 when the Market value of the share was Rs 80. Company had given 20% dividend. Find the rate of return on investment.

Answer 1

FV = Rs 100

MV = Rs 80

Number of shares purchased = 50

Sum invested = Number of shares purchased × MV of each share = 50 × 80 = Rs 4,000

Dividend received on each share = 20% of FV of each share = 20% of Rs 100 = $\frac{20}{100}\times 100$ = Rs 20

Total dividend received = Number of shares purchased × Dividend received on each share = 50 × 20 = Rs 1,000

∴ Rate of return on investment = $\frac{\mathrm{Total}\mathrm{dividend}\mathrm{received}}{\mathrm{Sum}\mathrm{invested}}\times 100\%=\frac{1000}{4000}\times 100\%$ = 25%

Thus, the rate of return on investment is 25%.