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Question
Amitesh had 400 shares of Rs 100 each of 'Telco' paying a dividend of 12.5%. He sold them at a market price of Rs 125 and invested the proceeds in Rs 50 shares of 'Adani Motors' available in the market at Rs 80 and paying a dividend of 16%. How many shares of Adani Motors did Amitesh buy and what is the change in his annual income?
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Solution
In first case: No. of shares sold = 400
Face value of each share = Rs 100
Face value of 400 shares =Rs ( 100 x 400) =Rs 40,000
Market value of each share = Rs 125
Market value of 400 shares =Rs ( 125 x 400) =Rs 50,000
Dividend (income) for 400 shares = 12.5 % of Rs 40,000 = Rs `(12.5 xx 40000)/100` = Rs 5000
In second case:
Proceeds from selling 400 shares =Rs 50,000
Face value of each share =Rs 50
Market value of each share = Rs 80
No. of shares bought = `50000/80 = 625`
Amitesh bought 625 shares of Rs 80 each.
Face value of 625 shares = Rs ( 50 x 625) = Rs 31,250
Dividend (income) for 625 shares = 16 % of Rs 31,250 = Rs `(16 xx 31250)/100` = Rs 5000
Change in annual income =Rs (5,000 - 5,000) =Rs 0 =Nil
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