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:

1. which firm is paying better.
2. 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?

Answer 1

i. 1^st 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%

2^nd 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 1^st firm:

∴ No of shares purchased = `y/13`shares

Total dividend = `Rs. 0.50 xx y/13 = Rs. y/26`  

For 2^nd 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