Question

Salman invests a sum of money in Rs. 50 shares, paying 15% dividend quoted at 20% premium. If his annual dividend is Rs. 600, calculate :

1. the number of shares he bought.
2. his total investment.
3. the rate of return on his investment.

Answer 1

N.V of each share = Rs. 50

M.V of each share = Rs. 50 + 20% of Rs. 50

= `50 + 20/100 xx 50`

= 50 + 10

= Rs. 60

Dividend on one share = 15% of Rs. 50

= `15/100 xx 50`

= 7.5

i. Number of shares bought

= `"Total dividend"/"Dividend on one share"`

= `600/7.5`

= 80

ii. His total investment

= Number of shares × M.V of one share

= 80 × Rs. 60

= Rs. 4800

iii. Rate of return

= `"Total dividend"/"Total investment" xx 100`

= `600/4800 xx 100`

= 12.5%