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A man sells 5000 common shares of Company X (each of par value $ 10), which pays a dividend of 20%, at $30 per share. He invests the sale proceeds in ordinary shares of Company Y(each of par value $25) that pays a dividend of 15%. If the market value of a share of Company Y is $40, find out the number of shares of Company Y purchased by the man.
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- 3850
- 3750
- 3700
- 3800
Correct Option: B
We have , Face value of each share = $ 10
Number of common shares of Company X = 5000
Total Number of common shares of Company X = 5000 x 10 = 50000
Income of the man from 5000 ordinary shares of Company X, which pays a dividend of 20%
i.e. 20% of 50000
| = $ |  | 50000 x 20 |  | = $ 10000 |
| 100 |
Selling price of a share of Company X = $ 30
∴ Selling price of 5000 shares of Company X = Number of common shares of Company X × Selling price of a share of Company X
= $ (5000 × 30)
= $ 150000.
Now, the market value of a share of Company Y is given to be $ 40.
∴ Number of shares of Company Y purchased by the man from $ 150000
| = | | Selling price of 5000 shares of Company X | | |
| Market value of a share of Company Y |
| = | | 150000 | | = $ 3750 . |
| 40 |
