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Question

Mr. Sharma buys 60 shares of nominal value of Rs 100 and he decides to sell them when they are at a premium of 60%. He invests the proceeds in shares of nominal value of Rs 50, quotes at 4% discount, paying 18% dividend annually. Calculate:
(i) the sale proceeds,
(ii) the number of shares he buys and
(iii) the annual dividend from these shares
[3 MARKS]

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Solution

Each subpart: 1 Mark each

(i) Nominal value of 60 shares = Rs 100 × 60 = Rs 6,000
The sale proceeds = Rs 6000 + 60% of Rs 6,000
= Rs 6000 + Rs 60×6000100 = Rs 6000 + Rs 3600 = Rs 9600
(ii) Discount on each share = 4% of Rs 50 = Rs 2
market value of each share = Rs 48
So, number of shares bought = 960048=200
(iii) Total face value = Rs 50 × 200 = Rs 10,000
Annual dividend = 18% of Rs 10,000 = Rs 18100×10,000 = Rs 1800


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