Aptitude - Stocks and Shares - Discussion

I have some doubt about this prob. No prob with the calculation part. Its clear how we get 15 through the calculation.

The man wants 12% interest on his money. He invested Rs 20 (i.e. Price of the share when he bought it). If he wants 12% on his money he should get a return of Rs 22. 4 (i.e 12% of 20). But he got Rs 1. 8 (i. E 9% dividend for Rs 20). So still he has to get Rs 0. 6. So the share price should be Rs 20. 6 in order to get the amount Rs 22. 4. Round off the fig take the current share price as Rs 21.

In other words if the present share value is Rs 15 (according the answer and calculation) and the share value is Rs 20 when he bought it, he is getting a loss or depreciation of Rs 5. Then how can he get 12% interest on his money.

So from these points according to me the share value should be more than 20 as he got only 9% dividend and he is expecting 12% interest on his money. Only one option is more than 20 or we can get it through the calculation I have told earlier.

If my consideration is wrong kindly guide me through this. Thanks in-advance.

First to calculate market value of each share, you must to know what is market value, dividend, what is face value.

Face value is the actual value of share that remains constant thoroughly, dividends so-called annual profit is always calculated on this face value.

For example, I say that the share of reliance is 100 rs and dividend is 5%, then 5 rs profit is distributed to the all share holder as per their share. The only thing you need to remember is that dividend is calculated on FACE VALUE or ACTUAL VALUE.

Now market value, always fluctuated based on company performance. If it may be given on some discount (less than face value), premium (more than face value) or actual face value (both are equal).

Ex. Reliance's share face value is 100 rs, it gives 5 rs. Discount on each share means market value is 95. So rate of interest is calculated always on this market value always.

Direct formula for relation in these term:

Face value*Dividend = Market value*Interest.

= 20*9 = a*12.

a = 15;

It's for @Priyanka who didn't understand the reliance problem and I'm guessing you were talking about the 2nd example of reliance as the 1st one is quite clear in itself.

So, you have a reliance share whose face value is Rs.100 and it is giving a Rs.5 discount on each share it means that the share is trading as 5 rupees less than it's face value and therefore;

Market Value = Face Value - Discount,
Market Value = 100 - 5 = 95.

I believe with this you will get the idea and if your share is trading at a premium then you just add that premium value into the face value to get the market value i.e.

Market Value = Face Value + Premium.

Hope this helps you.

What I construed from the above explanations was that if the face value is supposed rs. 100 and there is an 9% dividend, and if the market value is rs 90 then the amt of surplus return (that is the interest on market value or the dividend on the face value) should be equal.

In my case, that is rs 9 return on face value should be = rs 9 return on the market value so according to this the interest rate on market value should be 10%.

Am I getting the concept correctly?

It is known that the formula is:

(Dividend / market value) * face value = interest.
or
Dividend / market value = interest / face value.
or
Face value * dividend = market value * interest.

We put it up to this equation, become:
20 * 9% = x * 12%.

(Thanks to @Zohaib! :).
And then we got x = 15.

20 rs is the face value of share which invest % dividend implies 1.8 rs on face 20 rs face value for what market value does a person get 12% interest.

Interest formula is:

Earning/Investment (here market value)*100 = 12%.

= 1.8*100/x = 12.

x = 15 rs.

Stock with a Face Value of Rs.20 is yielding 9% divident and is trading at Rs.X.
What is the Value of Rs.X is the Question?

Earning on Rs.1.8/x=12%; x = Rs.15.

Here, He bought at 21.8 and he has to get 12% interest on his investment of 21.8 which means 24.416. Or there must be a disconnect between the two statements.

How can you multiply interest rate with dividend to find out market value. Does it has any formula? if not please explain me calculations step by step.

He ask from 12% of the money. So you have assume for the amount 100. Because % means 100.