Shares and Dividends
Introduction
Shares represent ownership in a company. When you buy shares, you become a shareholder and are entitled to a portion of the company's profits, distributed as dividends. In ICSE Class 10, you learn to compute income from shares, rate of return, and compare investment options.
Key Terms
- Face Value (FV) — The nominal value printed on the share certificate. Also called par value.
- Market Value (MV) — The price at which the share trades in the stock market.
- Dividend — The profit distributed to shareholders, declared as a percentage of the face value.
- Premium — When MV > FV, the share is said to be at a premium (above par).
- Discount — When MV < FV, the share is said to be at a discount (below par).
- Rate of Return (RoR) — The effective return on your investment, expressed as a percentage of the market value.
Key Relationships
- Number of shares = Total investment / Market value per share
- Annual income = Number of shares × Dividend per share
- Dividend per share = (Dividend % × Face value) / 100
- Rate of return = (Annual income / Total investment) × 100
Market Value Scenarios
| Case | Condition | Example |
|---|---|---|
| At par | MV = FV | FV = ₹100, MV = ₹100 |
| Above par (premium) | MV > FV | FV = ₹100, MV = ₹120 |
| Below par (discount) | MV < FV | FV = ₹100, MV = ₹80 |
Worked Examples
Example 1: Basic Income Calculation
A company declares a 15% dividend on shares of face value ₹100 each. Rohan buys 200 shares at a market price of ₹125 each. Find (a) his annual income, (b) percentage return on his investment.
Solution: (a) Dividend per share = 15% of ₹100 = ₹15 Annual income = 200 × ₹15 = ₹3,000
(b) Total investment = 200 × ₹125 = ₹25,000 Return % = (3,000 / 25,000) × 100 = 12%
Note: Although the dividend is 15% on face value, the actual return on investment is only 12% because he bought at a premium.
Example 2: Finding Number of Shares
Mrs. Sharma invests ₹31,200 in shares of face value ₹100 paying a 12% dividend. If the market value is ₹104, find (a) the number of shares bought, (b) her annual income, (c) her rate of return.
Solution: (a) Number of shares = 31,200 / 104 = 300 shares
(b) Dividend per share = 12% of ₹100 = ₹12 Annual income = 300 × ₹12 = ₹3,600
(c) Return % = (3,600 / 31,200) × 100 = 11.54%
Example 3: Shares at Discount
Ravi buys 500 shares of a company with face value ₹50 at a 10% discount. The company pays an 18% dividend. Find his annual income and rate of return.
Solution:
- MV = FV − Discount = 50 − 10% of 50 = 50 − 5 = ₹45
- Total investment = 500 × ₹45 = ₹22,500
- Dividend per share = 18% of ₹50 = ₹9
- Annual income = 500 × ₹9 = ₹4,500
- Return % = (4,500 / 22,500) × 100 = 20%
Example 4: Comparing Two Investments
Which is better: 12% shares at ₹140 (FV ₹100) or 10% shares at ₹96 (FV ₹80)?
Solution:
For the first investment:
- Dividend per share = 12% of ₹100 = ₹12
- Investment per share = ₹140
- Return % = (12 / 140) × 100 = 8.57%
For the second investment:
- Dividend per share = 10% of ₹80 = ₹8
- Investment per share = ₹96
- Return % = (8 / 96) × 100 = 8.33%
Since 8.57% > 8.33%, the first investment is better.
Comparison: FV vs MV — Impact on Returns
| Scenario | FV | MV | Dividend % | Income per share | Return % |
|---|---|---|---|---|---|
| At par | ₹100 | ₹100 | 15% | ₹15 | 15% |
| Above par | ₹100 | ₹125 | 15% | ₹15 | 12% |
| Below par | ₹100 | ₹80 | 15% | ₹15 | 18.75% |
The return % decreases when buying at premium and increases when buying at discount.
Common Mistakes and Fixes
| Mistake | Fix |
|---|---|
| Applying dividend % on market value | Dividend is ALWAYS on face value |
| Confusing FV and MV in return calculation | Return % = (Income / Investment) × 100 |
| Forgetting to multiply by number of shares | Annual income = n × dividend per share |
| Incorrectly computing premium/discount | Premium = MV − FV; Discount = FV − MV |
ICSE Exam Focus
Shares and dividends typically carry 8–12 marks in ICSE exams. Questions test:
- Computing income from share investments.
- Determining rate of return.
- Comparing two investment options.
- Finding the number of shares for a target income.
Marks Blueprint:
| Topic | Marks |
|---|---|
| Basic income and return calculation | 4 |
| Shares bought at premium/discount | 4 |
| Comparison of investments | 4 |
| Finding target income/number of shares | 3 |
| Conceptual questions (FV, MV, dividend) | 2 |
Self-Test Questions
-
A man buys 400 shares of face value ₹50 at a market price of ₹60 each. The company declares a 20% dividend. Find his annual income and rate of return.
-
Priya invests ₹48,000 in 15% shares of face value ₹100 at a market price of ₹120. How many shares does she buy? What is her annual income?
-
Which investment gives a better return: 9% shares at ₹72 (FV ₹60) or 12% shares at ₹140 (FV ₹100)?
-
A company pays a dividend of 16% on shares of face value ₹25. If the market value is ₹40, find the rate of return.
-
Explain the difference between face value and market value. Why does the rate of return differ from the dividend percentage when shares are bought at a premium?
Remember: In ICSE, the dividend percentage is always on the face value, not the market value. This single distinction is the key to solving shares problems correctly.
