QQuestion
A man invested in a company paying 12% dividend on its shares. If the percentage return on his investment is 10%, then the shares are:
(a) at par
(b) below par
(c) above par
(d) cannot be determined
✓Answer
(c) Above par
Explanation:
Assume the face value of one share is ₹100.
Dividend on one share = 12% of ₹100
⇒ Dividend = ₹12
Return% = \frac{\text{Dividend}}{\text{Market Value}} × 100
10 = \frac{12}{\text{Market Value}} × 100
⇒ Market Value = \frac{12\times100}{10}
⇒ Market Value = ₹120
Since the market value ₹120 is greater than the face value ₹100, the shares are above par.
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