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Question
If the face value of both the shares is same, then which investment out of the following is more profitable?
Company A : dividend 16%, MV = ₹ 80, Company B : dividend 20%, MV = ₹ 120.
Solution
Let the face value of each share be ₹ x.
The market value of each share of company A = ₹ 80
Dividend = 16%
Dividend = % Dividend × F.V.
Dividend = `16/100 xx x` = 0.16x
Sum Invested = ₹ 80
Now, Rate of return = `"Dividend Income"/"Sum Invested"` × 100
= `(0.16x)/80 xx 100`
= `(16x)/80`
= Rate of return = `x/5`%
The market value of each share of company B = ₹ 120
Dividend = 20%
Dividend = % Dividend × F.V.
Dividend = `20/100 xx x` = 0.2x
Sum Incested = ₹ 120
Rate of return = `"Dividend Income"/"Sum Invested"` × 100
= `(0.2x)/120 xx 100`
= `(2x)/120`
= `x/6`%
Rate of return = `x/6`%
∵ Rate of return of company A > The rate of return of company B.
∴ Investment in company A is more profitable
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Market value of shares and dividend declared by the two companies is given below. Face Value is same and it is Rs. 100 for both the shares. Investment in which company is more profitable ?
(1) Company A - Rs 132, 12%
(2) Company B - Rs 144, 16%
Shri Shantilal has purchased 150 shares of FV ₹ 100, for MV of ₹ 120, Company has paid dividend at 7%, then to find the rate of return on his investment, complete the following activity:
Solution: FV = ₹ 100; Number of shares = 150
Market value = ₹ 120
1. Sum investment = MV × No. of Shares
= `square xx square`
∴ Sum investment = ₹ 18,000
2. Dividend per share = FV × Rate of dividend
= `square xx square/100`
= ₹ 7
∴ Total dividend received = 150 × 7
= `square`
3. Rate of return = `"Dividend income"/"Sum inve ted" xx 100`
= `1050/18000 xx 100`
= `square`
If FV = ₹ 460 and premium = ₹ 165, then what is the value of MV?
