2 TIPS on Cracking Aptitude Questions on Stocks and Shares

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Recapitulation of the concepts – I

1.    Stock Capital: The total amount of money needed to run a company is called its stock capital.

2.    Shares or Stock: The whole capital of the company is divided into equal units. Each unit is called a share or a stock.

3.    Shareholder or Stockholder: Each individual who purchases one or more shares is called a shareholder (stockholder) of the company. The company issues share certificates to each of its shareholders indicating the number of shares allocated and the value of each share.

4.    Dividend: The annual profit distributed among shareholders is called dividend. It is paid annually as per share or as a percentage. Dividend is always paid on the face value of a share.

5.    Face Value: The value of a share or stock printed on the share-certificate is called its Face Value or Nominal Value or Par Value. The face value of a stock always remains the same.

Recapitulation of the concepts – II

1.    Market Value: The stocks of different companies can be traded (bought or sold) in the market through brokers at stock exchanges. The market value of a share changes from time to time. The price at which a stock is traded in the market is called its market value. A share or stock is said to be:

a)    At premium or above par, if its market value is more than its face value.

b)    At par, if its market value is the same as its face value.

c)    At discount or below par, if its market value is less than its face value.

Example: Assume that the face value of a company X is Rs.10 and it is now traded at a premium of Rs.2. Then its market value now is (Rs.10 + Rs.2) = Rs.12.

Similarly, if the company X having face value of Rs.10 is now traded at a discount of Rs.2, it means the market value of X now is (Rs.10 – Rs.2) is Rs.8

2.    Brokerage: Stocks of different companies can be traded (bought or sold) in the market through brokers at stock exchanges. The brokers’ charge is called brokerage.

Brokerage is added to the cost price when the stock is purchased and subtracted from the selling price when stock is sold.

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Tip #1: Interpret the question correctly

Rs.100, 10% stock at 120 means:

a)    The face value of stock = Rs.100

b)    Dividend= 10% of the Face Value = Rs.10

c)    Market Value = Rs.120.

Question: Find the cash required to buy Rs.3200, 7.5% stock at 107.

Solution:

Face Value = Rs.3200 => 32 shares must be purchased [Assume Face Value = Rs.100]

Market Price of 32 shares = 3200 x 107 = Rs.3424

Question: In order to obtain an income of Rs.650 from 10% stock at Rs.96, what amount must one invest?

Solution:

Face Value = Rs.100

Dividend = 10% of Rs.100 = Rs.10

Thus, for gaining Rs.650, investment = 96 x (650 / 10) = Rs.6240.

Question: Which is better investment: 11% stock at 143 or 9.75% stock at 117?

Solution:

Let the investment be Rs. X. Then,

Income on 1^st stock = X x 11 / 143 = X / 13

Income on 2^nd stock = X x 9.75 / 117 = X / 12

Thus, income on 2^nd stock > Income on 1^st stock. Hence, 2^nd stock is a better investment.

Tip #2: If investment is not mentioned, choose the investment in the relevant stock as x

Question: Juno invests a part of Rs.12000 in 12% stock at Rs.120 and the remainder in 15% stock at Rs.125. If her total dividend per annum is Rs.1360, how much does she invest in 12% stock at Rs.120?

Solution:

Let the investment in the 1^st stock be X. Then, investment in 2^nd stock = 12000 – X.

Income on 1^st stock = 12 / 120 x X = X / 10.

Income on 2^nd stock = 15 / 125 x (12000 – X) = 3(12000 – X) / 25

=>    X / 10 + 3 (12000 – X) / 25 = Rs.1360.

=>    5x + 72000 - 6x = 1360 x 50.

=>    x = Rs.4000.  

Question: Rs.9800 are invested partly in 9% stock at 75 and 10% stock at 80 to have equal amount of incomes. Find the investment in 9% stock.

Solution:

Let the investment in the 1^st stock be X. Then, investment in 2^nd stock = 9800 – X.

Income on 1^st stock = 9/75 x X = 3X/25 & on 2^nd stock = 10/80 x (9800 – X) = (9800 – X)/8.

=>    3X / 25 = (9800 – X) / 8

=>    24x = 9800 x 25 - 25x

=>    49x = 9800 x 25

=>    x = Rs.5000.

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