Question

Anil buys 350 Rs 100 shares of a company at a premium of 20% from the market. The company pays a 12% dividend annually.

Find

(i) the investment made by the Anil,

(ii) his annual income from the shares, and

(iii) the rate of return from the shares.

Answer 1

Given that,

Face value of shares (F.V.) = ₹ 100

Premium = 20%

∴ The market value of shares (M.V.)

= `100 + (20/100 xx 100) = ₹ 120`

Dividend = 12%

∴ Annual income from one share = `12/100 xx 100` = ₹ 12

Anil buys 350 shares.

i. Amount invested by Anil

= number of shares × market value

= 350 × 120

= ₹ 42,000

ii. Anil’s annual income from the shares = number of shares × annual income from one share

= 350 × 12

= ₹ 4200

iii. Rate of return from shares = `"Total annual income"/"Total annual invested" xx 100`

= `4200/42000 xx 100`

= 10%

∴ The rate of return from Anil’s shares is 10%.