Question

Amit owns 1500, ₹ 25 shares of a company which declares a dividend of 14%. He sells the shares at ₹ 40 each and invests the proceeds in 8%, ₹ 100 shares at ₹ 80. What is the change in his annual dividend income?

Answer 1

Given:

Amit holds 1500 shares of face value ₹ 25 each; dividend declared = 14%.

He sells these at ₹ 40 each and invests the proceeds in 8% ₹ 100 shares bought at ₹ 80 each.

Recall: Dividend is always expressed on face value and annual income = Number of shares × Dividend% × Face value of a share.

Step-wise calculation:

1. Annual dividend from original holding:

Dividend per old share = 14% of ₹ 25 

= 0.14 × 25

= ₹ 3.50

Annual income (old) = 1500 × ₹ 3.50 

= ₹ 5,250

2. Proceeds from sale:

Proceeds = 1500 × ₹ 40 

= ₹ 60,000

3. Purchase of new shares:

Price per new share = ₹ 80.

So, number of new shares = 60,000 ÷ 80

= 750 shares

4. Annual dividend from new holding:

Dividend per new share = 8% of ₹ 100 

= 0.08 × 100

= ₹ 8

Annual income (new) = 750 × ₹ 8

= ₹ 6,000

5. Change in annual dividend income:

Change = Annual income (new) – Annual income (old)

= 6,000 – 5,250

= ₹ 750

Amit’s annual dividend income increases by ₹ 750.