Question

Mr. Sharma has 60 shares of nominal value Rs. 100 and decides to sell them when they are at a premium of 60%. He invests the proceeds in shares of nominal value Rs. 50, quoted at 4% discount and paying 18% dividend annually. Calculate :

1. the sale proceeds;
2. the number of shares he buys and
3. his annual dividend from the shares.

Answer 1

1. Nominal value of 1 share = Rs. 100

Nominal value of 60 shares = Rs. 100 × 60 = Rs. 6,000

Market value of 1 share = Rs. 100 + 60% of Rs. 100

= Rs. 100 + Rs. 60

= Rs. 160

Market value of 60 shares = Rs. 160 × 60 = Rs. 9,600

2. Nominal value of 1 share = Rs. 50

Market value of 1 share = Rs. 50 – 4% of Rs. 50

= Rs. 50 – Rs. 2

= Rs. 48

No of shares purchased = `9600/48` = 200 shares

3. Nominal value of 200 shares = Rs. 50 × 200 = Rs. 10,000

Dividend% = 18%

Dividend = 18% of Rs. 10,000

`= 18/100 xx 10000`

= Rs. 1800