A dividend of 12% was declared on rs.150 shares selling at a certain price. I the rate of return is 10%. Calculate:
1. The market value of the share
2. The amount to be invested to obtain an annual dividend of rs. 1350
Answers
Answer:
Market value of share = Rs.180; Amount to be invested for annual dividend of Rs.1350 = Rs.11,250
Step-by-step explanation:
Face value = FV = Rs.150
Dividend rate = 12%
Rate of return = 10%
Dividend per share = 12% of 150 = 0.12 * 150 = 18
(Remember: Dividend is paid on face value)
Now:
Rate of return = 100 * (Dividend per share) / (Market price)
→ 10 = 100 * (18/MP)
→ 18/MP = 0.1
→ MP = 18/0.1
→ MP = 180
Market price = Rs.180 per share
The investor needs annual dividend of Rs.1,350. The dividend per share is Rs.18.
Total dividend = Number of shares (n) * Dividend per share
→ 1350 = n * 18
→ n = 1350 / 18
→ n = 75
Thus, the investor will need to buy 75 shares. The MP of each share is Rs.180. Thus, his total investment would be:
180 * 75 = 11.250
Total investment would be Rs.11,250