Total dividend=102,rate of dividend 12%,no. of
shares=85 then calculate face value of shares
Answers
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.
Dividend, Rate of Dividend
The part of the annual profit of a company distributed among its shareholders is called dividend. The dividend is always reckoned on the face value of a share irrespective of its MV.
The rate of dividend is expressed as a percentage of the NV of a share per annum.
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
=(\dfrac{Income}{Investment} \times 100) \%=(\dfrac{r}{M} \times 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
=(\dfrac{Income}{Investment} \times 100) \%=(\dfrac{9}{120} \times 100) \%=7\dfrac{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: Calculate the money required to buy: (i) 350, Rs 20 shares at a premium of Rs 7. (ii) 275, Rs 60 shares at a discount of Rs 10. (iii) 50, Rs 75 shares quoted at Rs 71.50.
Solution: (i) No. of shares = 350
NV = Rs 20
MV = Rs (20+7) = Rs 27
Therefore, money required to buy 350 shares = Rs (350
\times 27)= Rs 9450
(ii) No. of shares = 275
NV= Rs 60
MV= Rs (60-10) = Rs 50
Therefore, money required to buy 275 shares = Rs (275
\times 50) =Rs 13750
(iii) No. of shares = 50
NV= Rs 75
MV= Rs 71.50
Therefore, money required to buy 50 shares= Rs (50
\times 71.50) = Rs 3575