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.
- 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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