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Question
Mr. Gupta has a choice to invest in ten-rupee shares of two firm at Rs. 13 or at Rs. 16. If the first firm pays 5% dividend and the second firm pays 6% dividend per annum, find:
- which firm is paying better.
- if Mr. Gupta invests equally in both the firms and the difference between the returns from them is Rs. 30, find how much, in all, does he invest?
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Solution
i. 1st firm:
Nominal value of 1 share = Rs. 10
Market value of 1 share = Rs. 13
Dividend% = 5%
Dividend = 5% of Rs. 10 = Rs. 0.50
∴ Income% = `("Income")/("Investment") xx 100%`
= `0.50/13 xx 100%`
= 3.846%
2nd firm:
Nominal value of 1 share = Rs. 10
Market value of 1 share = Rs. 16
Dividend% = 6%
Dividend = 6% of Rs. 10 = Rs. 0.60
∴ Income% =`("Income")/("Investment") xx 100%`
= `0.60/16 xx 100%`
= 3.75%
Then first firm is paying better than second firm.
ii. Let money invested in each firm = Rs. y
For 1st firm:
∴ No of shares purchased = `y/13`shares
Total dividend = `Rs. 0.50 xx y/13 = Rs. y/26`
For 2nd firm:
∴ No of shares purchased = `y/16` shares
Total dividend = `Rs. 0.60 xx y/16 = Rs. (3y)/80`
Given difference of both dividend = Rs. 30
`\implies y/26 - (3y)/80 = Rs. 30`
`\implies y/1040 = Rs. 30`
`\implies` y = Rs. 30 × 1040 = Rs. 31,200
Total money invested in both firms = Rs. 31,200 × 2
= Rs. 62,400
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