Question

Mr. Ram Gopal invested ₹ 8000 in 7%, ₹ 100 shares at ₹ 80. After a year, he sold these shares at ₹ 75 each and invested the proceeds (including his dividend) in 18%, ₹ 25 shares at ₹ 41.

Find:

1. his dividend for the first year; 
2. his annual income in the second year; 
3. the percentage increase in his return on his original investment.

Answer 1

Given:

Initial investment = ₹ 8,000 in 7% ₹ 100 shares bought at ₹ 80 each.

After 1 year the shares are sold at ₹ 75 each; sale proceeds plus the dividend are reinvested in 18% ₹ 25 shares at ₹ 41 each.

Step-wise calculation:

1. Dividend for the first year

Number of original shares

= 8000 ÷ 80

= 100 shares

Dividend per share

= 7% of ₹ 100

= ₹ 7

Total dividend (1st year)

= 100 × ₹ 7 

= ₹ 700

2. Amount available to reinvest and new shares

Sale value of original shares

= 100 × ₹ 75 

= ₹ 7,500

Proceeds including dividend

= 7,500 + 700

= ₹ 8,200

Number of new ₹ 25 shares bought at ₹ 41 each

= 8200 ÷ 41

= 200 shares

3. Annual income in the second year

Dividend per new share

= 18% of ₹ 25 

= 0.18 × 25

= ₹ 4.50

Total dividend (2nd year)

= 200 × ₹ 4.50 

= ₹ 900

4. Percentage increase in return on original investment

Increase in annual return

= ₹ 900 – ₹ 700 

= ₹ 200

Percentage increase on original investment of ₹ 8,000

= 200 ÷ 8,000 × 100% 

= 2.5%