Question

Ankit had the option of investing in company A, where 7% ₹ 100 shares are available at ₹ 120 or in company B, where 8%, ₹ 1000 shares are available at ₹ 1620.

Statement (1): Investment in company B is better than company A.

Statement (2): Yield % of company B is better than as compared to company A.

Options

• Both the statements are true.

• Both the statements are false.

• Statement 1 is true, and statement 2 is false.

• Statement 1 is false, and statement 2 is true.

Answer 1

Both the statements are false.

Explanation:

For company A:

Dividend = 7%

N.V. = ₹ 100

M.V = ₹ 120

Dividend per share = 7% of N.V.

= `7/100 xx 100`

= ₹ 7

⇒ Rate of return = `"Dividend earned on 1 share"/"Market Value of one share" xx 100`

= `7/120 xx 100`

= 5.83%

For company B:

Dividend = 8%

N.V. = ₹ 1000

M.V = ₹ 1620

Dividend per share = 8% of N.V.

= `8/100 xx 1000`

= ₹ 80

⇒ Rate of return = `"Dividend earned on 1 share"/"Market Value of one share" xx 100`

= `8/1620 xx 1000`

= 4.94%

Investment in company B is better than A. This is false, because A gives higher yield.

So, statement 1 is false.

Yield of company B is better than A.

Company A gives better return that is 5.83%.

So, statement 2 is false.

Hence, option 2 is correct.