1. Stock capital: Stock capital is defined as the total amount of money needed to run the company.
2. Shares or stock: The whole capital of the company is divided into equal units. Each unit is called a share or a stock.
3. Dividend: The annual profit distributed among share holders is called dividend. Dividend is paid annually as per share or as a percentage.
4. Face value: Face value of a share is the value printed on the share certificate. It is also called nominal value or par value. The face value of a share always remains the same.
5. Market value: The stocks of different companies are sold and bought in the open market through a broker/brokers at stock – exchangers. For a share:
Example: Assume that the face value of a company \(x\) is Rs. 10 and it is now traded at a premium of Rs. 2. Then its market value now is (Rs. 10 + Rs. 2) = Rs. 12.
Similarly, if the company \(x\) having face value of Rs. 10 is now traded at a discount of Rs. 2, it means the market value of \(x\) now is (Rs. 10 – Rs. 2) is Rs. 8.
6. Brokerage: As it is known that, stocks of different companies can be traded (bought or sold) in the market through brokers at stock exchanges. The brokers charge is called brokerage.
Remember:
Rs.100, 10% stock at 120 means:
Example 1:
Find the cash required to buy Rs.3200, 7.5% stock at 107.
Solution:
Example 2:
In order to obtain an income of Rs.650 from 10% stock at Rs.96, what amount must one invest?
Solution:
Example 3:
Which is better investment: 11% stock at 143 or 9.75% stock at 117?
Solution:
Income on \(1^{st}\) stock = \(X\) x \(\frac{11}{143}\) = \(\frac{x}{13}\)
Income on \(2^{nd}\) stock = \(X\) x \(\frac{9.75}{117}\) = \(\frac{X}{12}\)
Thus, income on \(2^{nd}\) stock > Income on \(1^{st}\) stock. Hence, \(2^{nd}\) stock is a better investment.
Example 1:
Juno invests a part of Rs.12000 in 12% stock at Rs.120 and the remainder in 15% stock at Rs.125. If her total dividend per annum is Rs.1360, how much does she invest in 12% stock at Rs.120?
Solution:
Income on \(1^{st}\) stock = \(\frac{12}{120}\) x \(X\) = \(\frac{X}{10}\).
Income on \(2^{nd}\) stock = \(\frac{15}{125}\) x (12000 – \(X\)) = \(3\frac{(12000 – X)}{25}\)
=> \(\frac{X}{10}\) + \(3\frac{(12000 – X)}{25}\) = Rs.1360.
=> \(5X\) + 72000 – \(6X\) = 1360 x 50.
=> \(X\) = Rs.4000.
Example 2:
Rs.9800 are invested partly in 9% stock at 75 and 10% stock at 80 to have equal amount of incomes. Find the investment in 9% stock.
Solution:
Income on \(1^{st}\) stock = \(\frac{9}{75}\) x \(X\) = \(\frac{3X}{25}\) & on \(2^{nd}\) stock = \(\frac{10}{80}\) x (9800 – \(X\)) = \(\frac{(9800 – X)}{8}\).