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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:
1) the number of shares he bought.
2) his total investment.
3) the rate of return on his investment.
Solution
Given,
Nominal Value (N.V.) of each share = Rs. 50
Since the shares are quoted at 20% premium,
Market Value (M.V.) of each share = `50 + 20/100 xx 50 = Rs 60`
Dividend = Rs. 600
1) Dividend = Number of shares × dividend percentage × N.V.
Let n be the number of shares
Thus
600 = n x 15% x 50
`=> 600 = n xx 15/100 xx 50`
`=> n = (600 xx 2)/15`
`=> n = 80`
2) Total investment = n × M.V. = 80 × 60 = Rs. 4800
3) Rate of interest = `"Dividend"/"Total Investment" xx 100`
`= 600/4800 xx 100`
= 12.5 %
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