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Question
Mr. Sharma has 60 shares of nominal value Rs. 100 and decides to sell them when they are at a premium of 60%. He invests the proceeds in shares of nominal value Rs. 50, quoted at 4% discount and paying 18% dividend annually. Calculate :
- the sale proceeds;
- the number of shares he buys and
- his annual dividend from the shares.
Solution
1. Nominal value of 1 share = Rs. 100
Nominal value of 60 shares = Rs. 100 × 60 = Rs. 6,000
Market value of 1 share = Rs. 100 + 60% of Rs. 100
= Rs. 100 + Rs. 60
= Rs. 160
Market value of 60 shares = Rs. 160 × 60 = Rs. 9,600
2. Nominal value of 1 share = Rs. 50
Market value of 1 share = Rs. 50 – 4% of Rs. 50
= Rs. 50 – Rs. 2
= Rs. 48
No of shares purchased = `9600/48` = 200 shares
3. Nominal value of 200 shares = Rs. 50 × 200 = Rs. 10,000
Dividend% = 18%
Dividend = 18% of Rs. 10,000
`= 18/100 xx 10000`
= Rs. 1800
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