Question

Aman has 500, ₹ 100 shares of a company quoted at ₹ 120, paying a 10% dividend. When the share price rises to ₹ 200 each, he sells all his shares. He invests half of the sale proceeds in ₹ 10, 12% shares at ₹ 25 and the remaining sale proceeds in ₹ 400, 9% shares at ₹ 500.

Find his:

1. sales proceeds.
2. investment in ₹ 10, 12% shares at ₹ 25.
3. original income.
4. change in income.

Answer 1

Given: Aman holds 500 shares of face value ₹ 100 quoted at ₹ 120, paying a 10% dividend. He sells all when price rises to ₹ 200, then invests half the sale proceeds in ₹ 10, 12% shares at ₹ 25 and the other half in ₹ 400, 9% shares at ₹ 500.

Step-wise calculation:

1. Sale proceeds:

Sale price per share = ₹ 200

Number of shares = 500

Sale proceeds = 500 × 200 = ₹ 100,000

2. Investments from sale proceeds:

Half of proceeds = 100,000 ÷ 2 = ₹ 50,000

Investment in ₹ 10, 12% shares at ₹ 25:

Amount invested = ₹ 50,000

Number of ₹ 10 shares bought

= 50,000 ÷ 25 

= 2,000 shares

Investment in ₹ 400, 9% shares at ₹ 500:

Amount invested = ₹ 50,000

Number of ₹ 400 shares bought

= 50,000 ÷ 500 

= 100 shares

3. Original annual income (Before sale):

Dividend rate = 10% on face value ₹ 100

⇒ Dividend per share = 0.10 × 100 = ₹ 10

Original income = 500 × 10 = ₹ 5,000 per year

4. New annual income (After reinvestment):

From 2,000 of ₹ 10, 12% shares:

Dividend per such share = 12% of 10 = ₹ 1.20

Income = 2,000 × 1.20 = ₹ 2,400

From 100 of ₹ 400, 9% shares:

Dividend per such share = 9% of 400 = ₹ 36

Income = 100 × 36 = ₹ 3,600

Total new income = 2,400 + 3,600 

= ₹ 6,000 per year

5. Change in income:

Change = New income – Original income

= 6,000 – 5,000   

= ₹ 1,000   ...(Increase)