Question

a share having face value of rs 250 is at par then the market value is?​

Answer 1

Answer:

Certain business organizations need to raise money from public. In India, such an organization needs to be registered under the Indian Companies Act. Such an organization is called a public limited company.

A company may need money to start business or to start a new project. The sum of money required is called capital. The required capital is divided into small equal parts, and each part is called share. The company prepares a detailed plan of the proposed project and frames rules and regulations regarding its functioning. They, then, draft a proposal, issue a prospectus, explaining the plan of the project and invite the public to invest money in their project. They, thus, pool up the required funds from the public, by assigning them shares of the company. The value of a share may be Re 1, Rs 10, Rs 100, Rs 1000, etc. The capital is raised by selling these shares. A person who purchases shares of the company becomes a shareholder of the company.

Value of shares

The original value of a share printed in the certificate of the share is called its face value or nominal value (in short, NV). The NV of a share is also known as register value, printed value and par value. The price at which the share is sold or purchased in the capital market through stock exchanges is called its market value (in short, MV)

A share is said to be:

• At premium or Above par, if its market value is more than its face value.
• At par, if its market value equals its face value.
• At discount or Below par, if its market value is less than its face value.

The share of a company that is doing well or expected to do well is sold in the market at a price higher than its NV. In such a situation, we say the share is at premium or above par. For example, if a share of NV of Rs 10 is selling at Rs 16 then the share is at a premium of Rs 6. The share of a company that is neither doing well nor poorly is sold in the market at a price equal to its NV. For example, if a share of NV of Rs 100 is selling at Rs 100 then the share is at par. The share of a company that is doing poorly or may do poorly in the future is sold in the market at a price lower than its NV. In such a case, we say the share is at a discount or below par. For example, if a share of NV of Rs 100 is selling at Rs 80 then the share is at a discount of Rs 20.

Meaning of the statement “r% Rs 100 at Rs M”

The statement r% Rs 100 shares at Rs M means the following:

• The NV of a share is Rs 100.
• The MV of a share is Rs M.
• The dividend on a share is r% of NV, i.e., Rs r per annum.
• An investment of Rs M gives an annual income of Rs r.
• Rate of return per annum = Annual income from an investment of Rs 100 = $(\frac{Income}{Investment} x 100)$ = $(\frac{r}{M} x 100)$ %

Look at the statement given below:

• 9% Rs 100 shares at Rs 120 means
• Face value (NV) of 1 share = Rs 100.
• Market value (MV) of 1 share = Rs 120.
• The dividend on a share is 9% of its face value = 9% of Rs 100 = Rs 9
• An investment of Rs 120 gives an annual income of Rs 9.
• Rate of return per annum = Annual income from an investment of Rs 100 = $(\frac{Income}{Investment} x 100)$ % = $(\frac{9}{120} x 100)$% = $7\frac{1}{2}$%

Formula

1. Sum invested = No. of shares bought \times  MV of 1 share

2. No. of shares bought = $\dfrac{Sum \: invested}{MV \: of \: 1 \: share}$

Also, no. of shares bought = $\dfrac{Total \: dividend}{Dividend \: on \: 1 \: share}=\dfrac{Total \: income \: (profit)}{Income \: (profit)} from 1 share$

3. Income (return or profit) = (No. of shares) \times  (rate of dividend) \times  (NV) =(No. of shares) \times  (Dividend on 1 share)

4. Return % = Income (profit) % = $\dfrac{Income}{Investment} \times 100 \%$

NOTE: The face value of a share remains the same. The market value of a share changes from time to time.

Examples

Example 1: A man invests in shares for which we have the condition “7% Rs 100 shares at Rs 120”. What is the annual income of a person holding 150 such shares? Also, find his annual profit percentage.

Solution: Given,

Rate of dividend=7%

Nominal value (NV) = Rs 100

Market value (MV) = Rs 120

No. of shares= 150

Therefore, Income =No. of shares \times  rate of dividend \times  NV= $Rs \: (150 \times \dfrac{7}{100} \times 100)=Rs \: 1050$  

First we need to find the sum invested to find the profit percentage.

Investment=No. of shares \times  MV= $Rs \: (150 \times 120)=Rs \: 18000$  

Therefore, Required profit percentage =$\dfrac{Income}{Investment} \times 100 \% =\dfrac{Rs \: 1050}{Rs \: 18000} \times 100=5\dfrac{5}{6} \%$

Example 2: A company declares semiannual dividend of 6%. A man has 500 shares of NV Rs 25 each. Find his annual income.

Solution: Total NV of shares= Rs(25 \times  500)= Rs 12500

Semiannual dividend = 6% of Rs 12500= $\dfrac{6}{100} \times 12500=Rs \: 750$  

Therefore, his annual income= Rs (750 \times  2)=Rs 1500