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Question
Which is the better investment: 16% Rs. 100 shares at 80 or 20% Rs. 100 shares at 120?
Solution
1st case:
16% of Rs. 100 shares at 80 means;
Market value of 1 share = Rs. 80
Nominal value of 1 share = Rs. 100
Dividend = 16%
Income on Rs. 80 = 16% of Rs. 100 = Rs. 16
Income on Rs. 1 = `16/80` = Rs. 0.20
2nd case:
20% of Rs. 100 shares at 120 means
Market value of 1 share = Rs. 120
Nominal value of 1 share = Rs. 100
Dividend = 20%
Income on Rs. 120 = 20% of Rs. 100 = Rs. 20
Income on Rs. 1 = `20/120` = Rs. 0.17
Then 16% Rs. 100 shares at 80 is better investment.
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