Question

Mr. Jitendra invested an equal amount in two companies by purchasing equity shares with market price Rs. 160 and Rs. 175 each. At the end of the year, both the companies declared the dividend of 15% and 20% each. In which company was her investment profitable?

Answer 1

Given:

Invested equal amounts in two companies by buying shares at Market Value (MV) Rs. 160 and Rs. 175.

Dividends declared: 15% (first company) and 20% (second company).

We assume dividend % is on face value (take FV = Rs. 100), so dividend per share (₹) = dividend % of 100.

Step-wise calculation:

1. Find dividend received per share (assuming FV = 100):

Company 1: 15% of 100 = ₹ 15.

Company 2: 20% of 100 = ₹ 20.

2. Rate of return = `("Dividend income")/("Sum invested") xx 100`   ...(Use dividend per share divided by MV)

Company 1: Rate = `(15/160) xx 100` 

= 9.375%

Company 2: Rate = `(20/175) xx 100` ≈ 11.4286% (≈ 11.43%).

The investment in the company with MV = Rs. 175 and 20% dividend is more profitable because its rate of return (≈ 11.43%) is higher than that of the company with MV = Rs. 160 and 15% dividend (9.375%).