Question

A dividend of 9% was declared on Rs.100 shares selling at a certain price in the stock market. If the rate of return is 7.5%, calculate

(i) The market price of each share, and

(ii) The amount to be invested to obtain an annual dividend of Rs. 630.

Answer 1

i. Given that,

Face value of the share (F.V) = ₹ 100

Dividend = 9%

Rate of return = 7.5%

Annual income from the share = `9/100 xx 100`

= ₹ 9

Rate of return = `"Annual income"/"Market price" xx 100`

∴ `7.5 = 9/"Market price" xx 100`

∴ Market price = `900/7.5`

= ₹ 120

∴ The market price of the share is ₹ 120.

ii. Let ‘X’ be the amount to be invested to obtain an annual dividend of ₹ 630.

∴ 7.5% of X is ₹ 630

∴ `7.5/100 xx "X" = 630`

∴ X = `(630 xx 100)/7.5`

∴ X = 8400

∴ ₹ 8400 need to be invested to obtain an annual dividend of ₹ 630.