Shares and Dividends

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Shares and Dividends

Post by rajathadri on Fri Jul 02, 2010 4:43 pm

Let us now learn some terms related to shares.

Nominal Value (N.V) − The original value of a share is called the nominal value (N.V). It is also called registered value, printed value, or face value (F.V).

Market Value (M.V) − The price of a share at a particular time is called market value (M.V). This market value changes from time to time.

Share at par − If the market value and the nominal value of a share are equal, then the share is called a share at par.

Example: If a share of Rs 100 is being sold at a price of Rs 100, then the share is called at par.

Share at premium − If the market value (M.V) of a share is more than the face value (F. V) of the share, then the share is called share at premium or above par.

Example: If a share of Rs 100 is being sold at a price of Rs 165, then it is called share at a premium of Rs 65 or share at Rs 65 above par.

Share at discount − If the market value of a share is less than the face value of the share, then it is called the share at discount or below par.

Example: If a share of Rs 100 is being sold out for Rs 90, then the share is called at a discount of Rs 10 or at Rs 10 below par.

At the end of the year, when Mr. Gurukant Desai gets the profit, he decides to distribute the profit among the shareholders in proportion of their investments. This profit is called the dividend.

Dividend is always calculated as the percentage of the face value of the share. Therefore, dividend is the profit of the shareholders from their investments in the company.

Now, let us solve some examples to understand the concept better.

Example 1:

Rajesh invests Rs 6500 in shares, which pay 8% dividend when a share of Rs 100 costs Rs 120. What is the annual income of Rajesh from shares?

Solution:

Face value of the share = Rs 100

Market value of the share = Rs 120

Income from Rs 120 = 8% of Rs 100 = Rs 8

Income from Rs 6500

= Rs 433.33

Thus, the income of Rajesh from shares is Rs 433.33.

Example 2:

A man purchases some shares of a company, which pays 12% dividend at a time when a Rs 45 share costs Rs 50. What is his annual income from the shares, if he invests Rs 3100? Also, find the rate of interest, which he gets on the investment.

Solution:

Money invested = Rs 3100

Market value of a share = Rs 50

\ Number of shares

Dividend on 1 share of Rs 45 = 12% of Rs 45



= Rs 5.4

Dividend on 62 shares = 62 × Rs 5.4

= Rs 334.8

\ Annual income = Rs 334.8

Rate of interest

= 10.8%

Example 3:

Mayank and Basant purchase equal number of shares. Mayank purchases 5% Rs 50 shares at Rs 55 and Basant purchases 8% Rs 10 shares at Rs 12. Who earns more profit?

Solution:

Mayank’s income on Rs 55 = 5% of Rs 50



= Rs 2.5

Mayank’s income on Re 1 =

= 0.045

Basant’s income on Rs 12 = 8% of Rs 10



= Rs 0.8

Basant’s income on Re 1

= Rs 0.066

Thus, Basant earns more profit than Mayank.

Example 4:

Rashid sold 300 (Rs 20) shares paying 5% at Rs 25 and invested the proceeds in (Rs 12) shares at Rs 15. The rate of dividend is 8% per annum. What was the change in annual income of Rashid?

Solution:

Selling price of 300 shares = 300 × Rs 25 = Rs 7500

Number of shares purchased

= 500

Dividend on one share of Rs 20 = 5% of Rs 20

= Re 1

Dividend on 300 shares of Rs 20 = Rs 300

Income on Rs 20 shares = Rs 300

Dividend on 1 share of Rs 12 = 8% of Rs 12



= Rs 0.96

Dividend on 500 shares of Rs 12 = Rs 480

Income on Rs 12 shares = Rs 480

Change in income = Rs 480 − Rs 300

= Rs 180

Thus, the change in the annual income of Rashid is Rs 180.

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rajathadri
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