A man invests a sum of money in ₹100 shares paying 15% dividend quoted at 20% premium. If his annual dividend is ₹540, calculate the rate of return on his investment
Answer & explanation
Correct answer: option 2
The correct answer is option (2) :12.5%
Dividend on 1 share of ₹100= 15% of ₹ 100= ₹15
Total annual dividend earned = ₹ 540
∴ No. of shares bought $=\frac{₹540}{₹15}=36$
Market value of 1 share $₹100\left(1+\frac{20}{100}\right)$
∴ Cost of investment $=₹120×36= ₹ 4320$
So, rate of return $=\frac{540}{4320}×100$%= 12.5%