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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
12%
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B
6%
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C
10%
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D
8%
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Solution

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

₹720 = n x 12% x ₹60
720 = n x 12100 x 60
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 = DividendTotal investment x 100
= 7207200 x 100= 10%

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