Question

Samaira invested a sum of money in ₹60 shares, paying 12% per annum dividend quoted at 20% premium. If his annual dividend is ₹720, Calculate the rate of return on his investment.

• A. 6%
• B. 8%
• C. 10%
• D. 12%

Answer 1

The correct option is C 10%

Nominal value of 1 share = ₹60
Rate of dividend = 12%
Annual dividend = ₹720

Let the number of shares be n

We know that,

Dividend = Number of shares x Dividend % x Nominal value

$\Rightarrow$ ₹720 = n x 12% x ₹60
$\Rightarrow$720 = n x $\frac{12}{100}$ x 60
$\Rightarrow$ n = 100

Premium percentage = 20%

Market value of each share = 60 + 20% of 60 = 60 + 12 = 72

Total investment = Number of shares x MV of each share = 100 x 72 = 7200

Return on investment = $\frac{Dividend}{Totalinvestment}$ x 100
= $\frac{720}{7200}$ x 100= 10%