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 the rate of return on his investment.

Answer 1

Nominal value of $1$ share $=$ Rs. $50$
Dividend on $1$ share $=\frac{15}{100}\times 50=$ Rs. $7.50$
Total Dividend of Salman $=$ Rs. $600$

No. of shares Salman bought $=\frac{600}{7.50}=80$
Premium on $1$ share $=\frac{20}{100}\times 50=$ Rs. $10$
Market value of $1$ share $=50+10=$ Rs. $60$
Total investment for $80$ shares $=80\times 60=$ Rs. $4,800$.

Rate of return $=\frac{600}{4800}\times 100=12.5\%$.