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Question
Salman invests a sum of money in Rs. 50 shares, paying 15% dividend quoted at 20% premium. If his annual dividend is Rs. 600, calculate :
- the number of shares he bought.
- his total investment.
- the rate of return on his investment.
Solution
N.V of each share = Rs. 50
M.V of each share = Rs. 50 + 20% of Rs. 50
= `50 + 20/100 xx 50`
= 50 + 10
= Rs. 60
Dividend on one share = 15% of Rs. 50
= `15/100 xx 50`
= 7.5
i. Number of shares bought
= `"Total dividend"/"Dividend on one share"`
= `600/7.5`
= 80
ii. His total investment
= Number of shares × M.V of one share
= 80 × Rs. 60
= Rs. 4800
iii. Rate of return
= `"Total dividend"/"Total investment" xx 100`
= `600/4800 xx 100`
= 12.5%
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