Question

A company declares a dividend of 11.2% to all its share-holders. If its Rs. 60 share is available in the market at a premium of 25%, how much should Rakesh invest, in buying the shares of this company, in order to have an annual income of Rs. 1,680?

Answer 1

Nominal value of 1 share = Rs. 60

Market value of 1 share = Rs. 60 + 25% of Rs. 60

= Rs. 60 + Rs. 15

= Rs. 75

Let no. of shares purchased = n

Then nominal value of n shares = Rs. (60n)

Dividend% = 11.2%

Dividend = Rs. 1,680

∴ 11.2% of 60n = Rs. 1,680

`=> 11.2/100 xx 60n` = Rs. 1,680

`=> n = (1680 xx 100)/(11.2 xx 60) = 250`

Then market value of 250 shares = 250 × 75 = Rs. 18,750