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Question
A dividend of 9% was declared on Rs.100 shares selling at a certain price in the stock market. If the rate of return is 7.5%, calculate
(i) The market price of each share, and
(ii) The amount to be invested to obtain an annual dividend of Rs. 630.
Solution
i. Given that,
Face value of the share (F.V) = ₹ 100
Dividend = 9%
Rate of return = 7.5%
Annual income from the share = `9/100 xx 100`
= ₹ 9
Rate of return = `"Annual income"/"Market price" xx 100`
∴ `7.5 = 9/"Market price" xx 100`
∴ Market price = `900/7.5`
= ₹ 120
∴ The market price of the share is ₹ 120.
ii. Let ‘X’ be the amount to be invested to obtain an annual dividend of ₹ 630.
∴ 7.5% of X is ₹ 630
∴ `7.5/100 xx "X" = 630`
∴ X = `(630 xx 100)/7.5`
∴ X = 8400
∴ ₹ 8400 need to be invested to obtain an annual dividend of ₹ 630.
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