PROBLEM & SOLUTION -
Example.1) Find the market value of –
(i) 250, $100 shares at a premium of $20
(ii) 140, $25 shares at a discount of $5
Ans.) (i) Market value of 1 share = $(100 + 20) = $120
Market value of 250 shares = $(120 X 250) = $30000 (Ans.)
(ii) Market value of 1 share = $(25 – 5) = $20
Market value of 140 shares = $(140 X 25) = $3500 (Ans.)
Example.2) Find the annual income from 750, $25 shares, paying 8% dividend
Ans.) Face value of 1 share = $25
Annual income from 1 share = 8% of $25
8
= $(25 X ------) = $2
100
Annual income from 750 shares = $(750 X 2) = $1500 (Ans.)
Example.3) Salman buys $50 shares of face value $100 available at $132
(i) What is the investment ?
(ii) If the divided is 8%, what will be his annual income ?
(iii) If he wants to increase his annual income by $160, how many extra shares should he buy ?
Ans.) Market value of 1 share = $132
Market value of 50 shares = $(132 X 50) = $6600
So, Salman’s total investment = $6600 …………………………..(i) (Ans.)
Face value of each share = $100
Face value of 50 shares = $(100 X 50) = $5000
Salman’s annual income = 8% of $5000
8
= $5000 X ------- = $400 ………………..(ii) (Ans.)
100
Income from each share = $8
Extra income required = $160
160
So, extra number shares to be bought = $ ------- = 20 …………(iii) (Ans.)
8
Example.4) A man invests $10800 on $100 shares at $90. If the company pays him 20% dividend, find –
(i) The number of shares he buys
(ii) His total annual dividend
(iii) His percentage return on the shares
Ans.) Total investment = $10800
Market value of each share = $90
$10800
Number of shares bought = ----------- = 120 …………………….(i) (Ans.)
$90
Face value of each share = $100
Face value of 120 shares = $(120 X 100) = $12000
Man’s annual dividend = 20% of $12000
20
= ------ X $12000 = $2400 …………………….(ii) (Ans.)
100
Total investment of the man = $10800
His annual return = $2400
Man’s annual percentage return
2400
= (--------- X 100)% = 22.22% …………………..(iii) (Ans.)
10800
Example.5) Mr. Patric invested $5200 on $100 shares at a discount of $20 paying 8%. At the end of one year, he sells the share at a premium of $20. Find – (i) The annul dividend
(ii) The total annual profit earned including his dividend.
Ans.) Total investment = $5200
Market value of each share = $(100 – 20) = $80.
$5200
Number of shares bought = --------- = 65
$80
Face value of 65 shares = $(65 X 100) = $6500
Mr. Patrick’s annual dividend = 8% of $6500
8
= ------- X 6500 = 65 X 8 = $520 …………….(i) (Ans.)
100
Selling price of each share = $(100 + 20) = $120
Selling price of 65 shares = $(120 X 65) = $7800
Total annual profit including dividend = $[(7800 – 5200) + 520]
= $3120 ……………..(ii) (Ans.)
Example.6) Devid invests $4500 in 10%, $10 shares at $15. He sells the shares when the price rises to $30 and invests the proceeds in 12%, $100 shares at $125.
Calculate – (i) The sale proceeds
(ii) The number of $125 shares he buys
(iii) The change in his annual income from dividend.
Ans.) Total investment = $4500
Market value of each share = $15
$4500
Number of shares bought = --------- = 300
$15
Selling price of each shares = $30
Sale proceeds = $(300 X 30) = $9000 ……………………(i) (Ans.)
Market value of each share = $125
Total investment = $9000
$9000
Number of shares he buys = ---------- = 72 ………………….(ii) (Ans.)
$125
Face value of 300 shares of 1st kind = $(300 X 10) = $3000
10
His annual income from shares of 1st kind = $(3000 X -------) = $300
100
Face value of 72 shares of 2nd kind = $(72 X 100) = $7200
12
His annual income from shares of 2nd kind = $(7200 X -------) = $864
100
Change in income = $(864 – 240) = $624 ……………..(iii) (Ans.)
Example.7) A man invested a sum of money in $100 shares, paying 20% dividend and quoted at 20% premium. If his annual dividend is $540, calculate –
(i) His total investment
(ii) The rate of return on his investment.
Ans.) We have –
Annual dividend on 1 share = 20% of $100 = $20
Total Annual Dividend $540
Number of shares bought = -------------------- = -------- = 27
Dividend on 1 share $20
Market value of 1 share = $120
His total investment = $(120 X 27) = $3240……………….(i) (Ans.)
His total investment = $3240
His annual dividend = $540
540 100
Rate of return = (------- X 100)% = ------- %
3240 6
= 16.66 % = 16.7% …………….(ii) (Ans.)
Example.8) A man invested $4500 in 20%, $100 shares quoted at $125. When the market value of these shares rose to $140, he sold some shares, just enough to raise $840. Calculate –
(i) The number of shares he still holds
(ii) The dividend due to him on these remaining shares
Total investment 4500
Ans.) Number of shares bought = ------------------- = ------- = 36
Market value of 1 share 125
Total sale proceeds 840
Number of shares sold = ------------------------- = -------- = 6
New market value of 1 share 140
Number of shares he still in hold = (36 – 6) = 30 shares ………...(i) (Ans.)
Annual dividend on remaining each share = 20% of $100 = $20
Annual dividend on remaining 30 shares = $(20 X 30)
= $600 …………....(ii) (Ans.)
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