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Question no. 56196

An investor puts Rs. 14,400 into company shares valued at Rs. 100 with a 20% premium. Given a 5% year-end dividend, what is his return?

Select your answer for: An investor puts Rs. 14,400 into company shares valued at Rs. 100 with a 20% premium. Given a 5% year-end dividend, what is his return?
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Answer: B. Rs. 600

Explanation

Buying shares at a twenty percent premium means each hundred-rupee face value share costs one hundred twenty in the market. Dividing the total investment of fourteen thousand four hundred by the market price per share gives one hundred twenty total shares purchased. Calculating a five percent dividend on the nominal face value of each share yields an annual return of six hundred. Stock dividends are invariably calculated as a percentage of the nominal face value, regardless of market purchase premiums. Market price premiums reflect shares trading above their original par value due to high corporate demand or profitability. Total investment cost equals the number of shares purchased multiplied by the market price per share.

Option A underestimates the total dividend return based on the correct number of purchased stock units. Option C results from incorrectly calculating the dividend percentage against the market premium price instead of par. Option D overestimates the return by failing to apply the correct share quantity purchased with the capital.

Subject
Mathematics
Category
Mathematics
Topic
—
Difficulty
medium

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