Stocks and Shares

Explanation / Important formulas:

Shares or stocks: The whole capital is divided into small units called shares or stock.

Example: For each investment, the company issues a ‘share-certificate’, showing the value of each share and the number of shares held by a person. The person who subscribes in shares or stock is called a share holder or stock holder.

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

Dividend: The annual profit distributed among share holders is called dividend. Dividend is paid annually as per share or as a percentage.

Market Value: The stock of different companies are sold and bought in the open market through brokers at stock-exchanges. A share or stock is said to be:

  • At premium or Above par, if its market value is more than its face value.
  • At par, if its market value is the same as its face value.
  • At discount or Below par, if its market value is less than its face value.
  • Thus, if a Rs. 100 stock is quoted at premium of 16, then market value of the stock = Rs.(100 + 16) = Rs. 116.
  • Likewise, if a Rs. 100 stock is quoted at a discount of 7, then market value of the stock = Rs. (100 – 7) = 93.

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.

Brokerage: The broker’s charge is called brokerage.

  • When stock is purchased, brokerage is added to the cost price.
  • When stock is sold, brokerage is subtracted from the selling price.

Note:                                     

  • The face value of a share always remains the same.
  • The market value of a share changes from time to time.
  • Dividend is always paid on the face value of a share.
  • Number of shares held by a person = Total Investment / Investment in 1 share = Total Income / Income from 1 share = Total face Value / Face of 1 share

Thus, by a Rs. 100, 9% stock at 120, we mean that:

  • Face Value of stock = Rs. 100.
  • Market Value (M.V) of stock = Rs. 120.
  • Annual dividend on 1 share = 9% of face value = 9% of Rs. 100 = Rs. 9.
  • An investment of Rs. 120 gives an annual income of Rs. 9.
  • Rate of interest p.a = Annual income from an investment of Rs. 100 = (9/120 x 100)% = 7 ½%

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Stocks and Shares - Test



Stocks and shares - Question and Answers

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