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If the face value of both the shares is same, then which investment out of the following is more profitable? Company A : Dividend 16%, MV = ₹80, Company B : dividend 20%, MV = ₹120.

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 Here face value for both the shares is same

Let the face value be ₹100

(i) For company A : FV = ₹100 [Assumed]

MV = ₹80

Dividend rate = 16%

 ∴ Dividend per share =FV × rate

=100 × 16%
= 100 x \({{16} \over 100}\)
= ₹16
Rate of return = \({{Dividend} \over MV}\) x 100
=\({{16} \over 80}\) x 100
 =20%
 ∴ The rate of return for investment in company A = 20%

(ii) For company B : FV = ₹100 [Assumed]

MV = ₹120

Dividend rate = 20%

 ∴ Dividend per share =FV × rate

=100 × 20%
=100 x \({{20} \over 100}\)
= ₹ 20
Rate of return =  \({{Dividend} \over MV}\) x100

=\({{20} \over 120}\) x 100
=\({{50} \over 3}\)
 = ₹16.67
 ∴ The rate of return for investment in company B = 16.67%

 ∴ It is obvious that company A is more profitable.
 

Financial Planning for Math I July 31 , 2018 0 Comments 899 views