Question

Mr. Gupta has a choice to invest in ten-rupee shares of two firms at Rs 13 or at 16. If the first firm pays 5% dividend and the second firm pays 6% dividend per annum, find :

(i) which firm is paying better.

(ii) if Mr. Gupta invests equally in both the firms and the difference between the returns from then is Rs 30, find how much, in all, does he invest ?

Answer 1

(i)
1 st firm:
Nominal value of 1 share = Rs. 10
Market value of 1 share = Rs. 13
Dividend% = 5%
Dividend = 5% of Rs. 10 = Rs. 0.50
∴ Income% = $\times$ 100%
= $\times$ 100% = 3.846%

2 nd firm:
Nominal value of 1 share = Rs. 10
Market value of 1 share = Rs. 16
Dividend% = 6%
Dividend = 6% of Rs. 10 = Rs. 0.60
∴ Income% = $\times$ 100%
= $\times$ 100% = 3.75%
Then first firm is paying better than second firm.

(ii)
Let money invested in each firm= Rs y
For 1st firm:
∴ No of shares purchased = 𝑠ℎ𝑎𝑟𝑒𝑠
Total dividend = Rs. 0.50 $\times$ = 𝑅𝑠.

For 2nd firm:
∴ No of shares purchased = 𝑠ℎ𝑎𝑟𝑒𝑠
Total dividend = Rs. 0.60 $\times$​​​​​​​ = 𝑅𝑠.
Given – difference of both dividend = Rs. 30
⇒ − = 𝑅𝑠. 30
⇒ = Rs. 30
⇒ y = Rs. 30 $\times$ 1040 = Rs. 31,200

Total money invested in both firms = Rs. 31,200 $\times$ 2
= Rs. 62,400