Discussion

A man buys Rs. 20 shares paying 9% dividend. The man wants to have an interest of 12% on his money. The market value of each share is:

Answer: B

The dividend is 9% of the Rs. 20 face value:

\[ 0.09 \times 20 = \text{Rs. } 1.80 \text{ per share} \]

For that to be 12% of the price paid:

\[ \text{market value} = \frac{1.80}{0.12} = \text{Rs. } 15 \]

To earn a higher yield than the dividend rate, the share must be bought below par - which is why the answer is under Rs. 20.

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