QA Stocks

STOCKS & SHARES

FACE VALUE: Value of the share when the share is issued, generally Rs. 10 or Rs. 100
MARKET VALUE: Real time Price of the share
DIVIDEND: Income of shareholder given by company as the declared percentage of the face
value, e.g. 10% stock at 120, this means that market price is 120 and dividend declared is 10%,
but the dividend has been declared on the face value, which we will presume to be 100. So the
dividend declared is 8% of 100 = Rs. 8
EFFECTIVE DIVIDEND: Dividend calculated at the Market Value
If the previous case, Effective Dividend =
INVESTMENT: = Number of shares

Market Value

PURCHASE PRICE = Market Value - Discount

If there is a DISCOUNT %, then it is calculated on the selling price
For example: Shares priced Rs. 150 were purchased at a discount of 12%, so the purchase price
= 150 -12% of 150 = 150 18= 132
BROKERAGE: Amount paid to the brokers for purchase of shares.
Purchase Price = Market Value + Brokerage
When both discount & brokerage are present, brokerage is first calculated on Market Value &
then discount is charged.
Purchase Price = Market Value + Brokerage - Discount
Examples
1) John invests Rs. 6500 in a 12% stock at Rs. 125. How many shares does he purchase and
what is total dividend income?
Number of shares = 6500/125 = 52
Dividend per share = 12% of 100= 12
Total dividend = 12 x 52= 624
2) Benny invests Rs. 14400 in a 8% stock at Rs. 90 and Kenny invests Rs. 17940 in a 9%
stock at 115. Who earns more dividend income?
Bennys number of shares = 14400/90= 160
Bennys income = 8 x 160 = 1280
Kennys number of shares = 17940/115= 156
Kennys income = 9 x 156 = 1404
Therefore Kenny earns more

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QA Stocks

3) Which is better investment 1.5% stock at 156 or 9.2% stock at 131?

Effective Dividend comparison :
=
Now we can use any of the ratio comparison methods discussed in the module to compare the
ratios
Since
Therefore 11.5% stock at 156 is the better investment
4) In order to obtain an income of Rs. 792 from 12% stock at Rs. 98, what is the amount of
investment needed?
Dividend per share = 12
Number of shares needed = 792/12=66
Investment = 66 x 98= 6468
5) A person invests Rs. 16000 in 2 stocks: Stock A of 12% at Rs. 120 and Stock B of 15% at
Rs. 125. His effective dividend income is 10.5%. How much did he invest in each stock?
Effective dividend of stock A = 12/120= 10%
Effective dividend of stock B = 15/125= 12%
Overall effective dividend = 10.5%
Using allegation,
Amount invested in stock A = x 16000 = 12000
Amount invested in stock B = x 16000 =4000

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