Question

A man invests a sum of money in ₹ 100 shares, paying 10% dividend and quoted at 20% premium. If his annual dividend from these shares is ₹ 560, calculate:

1. his total investment, 
2. the rate of return on his investment.

Answer 1

Given:

Face value of one share = ₹ 100.

Dividend rate = 10% → Dividend per share = 10% of ₹ 100 = ₹ 10.

Shares quoted at 20% premium → Market price per share = ₹ `100 xx (1 + 20/100)` = ₹ 120.

Total annual dividend received = ₹ 560.

Step-wise calculation:

1. Use Total dividend = Number of shares × Dividend per share.

Number of shares = Total dividend ÷ Dividend per share

= 560 ÷ 10

= 56 shares

2. Total investment = Number of shares × Market price per share

= 56 × 120

= ₹ 6,720

3. Rate of return (yield) = (Annual dividend ÷ Total investment) × 100

= (560 ÷ 6,720) × 100

= `1/12 × 100`

= `8 1/3 % ≈ 8.33%`