Question

Ashish bought 4500, ₹ 10 shares paying 12% per annum. He sold them when the price rose to ₹ 23 and invested the proceeds in ₹ 25 shares paying 10% per annum, at ₹ 18. Find the change in his annual income.

Answer 1

Given:

Initial holding: 4500 shares of face value ₹ 10, dividend = 12% p.a.

He sold them at market price = ₹ 23 per share.

Proceeds invested in ₹ 25 shares (face value ₹ 25) paying 10% p.a., bought at market price = ₹ 18 per share.

Step-wise calculation:

1. Annual dividend per initial share

= 12% of ₹ 10

= ₹ 1.20

Total initial annual income

= 4500 × 1.20

= ₹ 5,400

2. Sale proceeds

= 4500 × ₹ 23 

= ₹ 1,03,500

3. Number of new (₹ 25) shares bought at ₹ 18 

= 1,03,500 ÷ 18

= 5,750 shares

4. Annual dividend per new share

= 10% of ₹ 25 

= ₹ 2.50

Total new annual income

= 5,750 × 2.50 

= ₹ 14,375

5. Change in annual income

= New income – Initial income 

= ₹ 14,375 – ₹ 5,400 

= ₹ 8,975 increase

Ashish’s annual income increases by ₹ 8,975.