Question

Which is better investment:

(12%, ₹ 20 shares at ₹ 16) or (15%, ₹ 20 shares at ₹ 24)?

Answer 1

Given:

Option A: 12%

`"Face value"/"Share"` = ₹ 20

`"Market price"/"Share"` = ₹ 16

Option B: 15%

`"Face value"/"Share"` = ₹ 20

`"Market price"/"Share"` = ₹ 24

Step-wise calculation:

1. Find dividend per share

Dividend = Dividend rate % of Face Value

Option A:

`"Dividend"/"Share"` = 12% of ₹ 20 

= 0.12 × 20

= ₹ 2.40

Option B:

`"Dividend"/"Share"` = 15% of ₹ 20

= 0.15 × 20

= ₹ 3.00

2. Find dividend yield (Return %) on investment

Yield % = `"Dividend per share"/"Market price per share" xx 100`

Option A:

Yield % = `2.40/16 xx 100`

= 0.15 × 100

= 15%

Option B:

Yield % = `3.00/24 xx 100`

= 0.125 × 100

= 12.5%

Option A (12%, ₹ 20 shares at ₹ 16) is the better investment because its dividend yield is 15%, which is higher than Option B’s 12.5%.