Question

which company is giving a better return.

Answer 1

Since Profit% on Market value=Dividend % on Nominal value

First case

Market value=Rs.120

Nominal value=Rs.100

Dividend %=5%

$\therefore$P% on 120=5% on 100

$\Rightarrow \frac{P}{100}\times 120=\frac{5}{100}\times 100$

$\Rightarrow 12P=50$

$\Rightarrow P=\frac{50}{12}=4.16$%

Second case

Market value=Rs.132

Nominal value=Rs.100

Dividend %=6%

$\therefore$P% on 132=6% on 100

$\Rightarrow \frac{P}{100}\times 132=\frac{6}{100}\times 100$

$\Rightarrow 132P=600$

$\Rightarrow P=\frac{600}{132}=4.54$%

$\therefore$Second Company gives better return.