Question

Mr Sharma has 60 shares of N.V. Rs 100 and sells them when they are at a premium of 60 %. He invests the proceeds in shares of nominal value Rs 50, quoted at 4% discount, and paying 18% dividend annually. Calculate :

(i) the sale proceeds;

(ii) the number of shares he buys; and

(iii) his annual dividend from the shares.

Answer 1

(i)Nominal value of 1 share = Rs. 100
Nominal value of 60 shares = Rs. 100 $\times$ 60 = Rs. 6,000
Market value of 1 share = Rs. 100 + 60% of Rs. 100
= Rs. 100 + Rs. 60 = Rs. 160
Market value of 60 shares = Rs. 160 $\times$ 60 = Rs. 9,600

(ii) Nominal value of 1 share = Rs. 50
Market value of 1 share = Rs. 50 − 4% of Rs. 50
= Rs. 50 – Rs.2 = Rs.48
∴ No of shares purchased = = 200 shares

(iii) Nominal value of 200 shares = Rs. 50 $\times$ 200 = Rs. 10,000
Dividend % = 18%
Dividend = 18% of Rs. 10,000
= $\times$ 𝑅𝑠. 10,000 = 𝑅𝑠. 1,800