Skip to content

Mathematics and Statistics · Ch 18 — Commercial Mathematics

Shares and Dividends

6

Shares and Dividends

A company raises capital by dividing it into small equal units called shares, sold to the public.

Face value, market value and dividend

  • Face value (FV / nominal value / par value) — the value printed on the share (e.g. ₹10\text{₹}10 or ₹100\text{₹}100). It is fixed and is the base for dividend.
  • Market value (MV) — the price at which the share is actually bought or sold. If MV>FV\text{MV}>\text{FV} the share is at a premium; if MV<FV\text{MV}<\text{FV}, at a discount; if equal, at par.
  • Dividend — the part of a company's profit distributed to shareholders, declared as a percentage of the face value.

Investment, income and return

Note

The three quantities to keep separate

Number of shares=Amount investedMarket value per share,\text{Number of shares}=\frac{\text{Amount invested}}{\text{Market value per share}},

Dividend income=Dividend%×Total face value=Dividend%×(No. of shares×FV),\text{Dividend income}=\text{Dividend}\%\times\text{Total face value}=\text{Dividend}\%\times(\text{No. of shares}\times\text{FV}),

Rate of return=Dividend incomeAmount invested×100.\text{Rate of return}=\frac{\text{Dividend income}}{\text{Amount invested}}\times100.

Watch out

Dividend is on face value; return is on money invested …

Definition 1Face value (FV)

The nominal value printed on a share (e.g. ₹100\text{₹}100). Fixed; it is the base on which divide …

Definition 2Market value (MV)

The actual trading price of a share. Above FV = at a premium; below FV = at a discount; equal = at par. Determines how many s …

Definition 3Dividend and rate of return

Dividend income == dividend%×\%\times total face value; rate of return =dividend incomeamount invested×100=\dfrac{\text{dividend income}}{\text{amount invested}}\times100 (on the market …

Start your 14-day free trial to unlock the full solution →
← Previous · 5Simple Interest and Compound InterestNext · 7 →GST and Basic Taxation