Question

Salman invests a sum of money in Rs 50 shares, paying 15% dividend quoted at 20% premium. If his annual dividend is Rs 600, calculate:
(i) The number of shares he bought
(ii) His total investment
(iii) The rate of return on his investment.
[3 MARKS]

Answer 1

Each subpart: 1 Mark each

(i) Face value of a share = Rs 50
Premium = 20%
Market value of a share = 50 + 20% of 50
$=50+\frac{20}{100}\times 50$
$=50+10=Rs60$
Annual dividend = Rs 600
Rate of dividend = 15%
Annual dividend = 15% of $50\times No.ofshares$
$\Rightarrow 600=\frac{15}{100}\times 50\times No.ofshares$
$\Rightarrow$ No. of shares = 80
(ii) His total investment
= M.V $\times$ No. of shares
$=60\times 80=Rs4800$
(iii) Rate of return $=\frac{Dividend}{Investment}\times 100$
$=\frac{600}{4800}\times 100=12.5\%$