Shares

When people earn money, they do not always spend all of it. Some part is saved for future needs such as education, medical expenses, buying a house, or retirement. However, merely saving money is not enough because the value of money can fall over time due to rising prices, known as inflation. Therefore, people invest their savings in different options to earn additional income and increase their wealth.

Investment means using money today to buy an asset or financial product with the expectation of earning a return in the future. This return may come as interest, rent, dividend, profit, or an increase in the value of the asset.

The total amount of money needed to run the company is called the capital.

A share is the smallest unit of the capital of a company. The capital of a company is divided into small equal parts, each of which is called a share.

A shareholder is a person who owns one or more shares of a company. A shareholder is a part owner of the company in proportion to the number of shares held.

A stock exchange is a place where the buying and selling of shares takes place. It is also known as the share market or capital market.

The annual profit distributed among shareholders is called a dividend.

The value of a share printed on the share certificate is called its Nominal Value, or Face Value, or Par Value.

The shares of different companies can be bought or sold in the market through the stock exchange.

Investment and Number of Shares

\[ \text{Investment} = \text{Number of Shares} \times \text{Market Value} \]

\[ \text{Number of Shares} = \frac{\text{Total Investment}}{\text{Market Value per Share}} \]

Dividend

\[ \text{Dividend per Share} = \frac{\text{Dividend } \%}{100} \times \text{Face Value} \]

\[ \text{Total Annual Dividend} = \text{Number of Shares} \times \text{Dividend per Share} \]

Rate of Return

\[ \text{Rate of Return} = \frac{\text{Total Annual Dividend}}{\text{Total Investment}} \times 100 \]

A share may be sold at a price different from its face value.

Question: Complete the following table using given information.

\[ \begin{array}{|c|c|c|c|} \hline \text{Sr.No.} & FV & \text{Share is at} & MV \\ \hline \text{(i)} & ₹10 & \text{Premium of ₹7} & \\ \hline \text{(ii)} & ₹25 & & ₹16 \\ \hline \text{(iii)} & & \text{at par} & ₹5 \\ \hline \end{array} \]

Solution: 

(i) Face Value (FV) = \[ \text{₹ } 10 \]

Share is at a premium of \[ \text{₹ } 7 \]

Formula: \[ \text{Market Value (MV)} = \text{FV} + \text{Premium} \]

\[ \text{MV} = 10 + 7 = \text{₹ } 17 \]

(ii) Face Value (FV) = \[ \text{₹ } 25 \]

Market Value (MV) = \[ \text{₹ } 16 \]

Since \[ \text{MV} < \text{FV}, \] the share is at a discount.

Formula: \[ \text{Discount} = \text{FV} - \text{MV} \]

\[ \text{Discount} = 25 - 16 = \text{₹ } 9 \] (Share is at a discount of \[ \text{₹ } 9 \] )

(iii) Share is at par

Market Value (MV) = \[ \text{₹ } 5 \]

When a share is at par, Face Value equals Market Value ( \[ \text{FV} = \text{MV} \] ).

\[ \text{FV} = \text{₹ } 5 \]

Question: Smita has invested ₹12,000 and purchased shares of FV ₹10 at a premium of ₹2. Find the number of shares she purchased.

Solution:

Given:

Total Investment = \[ \text{₹ } 12{,}000 \]

Face Value (FV) = \[ \text{₹ } 10 \]

Premium = \[ \text{₹ } 2 \]

1. Calculate Market Value (MV):

\[ \text{MV} = \text{FV} + \text{Premium} \]

\[ \text{MV} = 10 + 2 = 12 \]

2. Calculate Number of Shares:

\[ \text{Number of shares} = \frac{\text{Total investment}}{\text{MV}} \]

\[ \text{Number of shares} = \frac{12000}{12} = 1000 \text{ shares} \]