Concept of Stocks Shares and Debentures with Question Solving Video Lecture

In this video I have discussed with you the concept of stocks and shares. We all keep hearing about a term IPO which means Initial Public Offering in which any company which wants capital to expand its business, infrastructure and services introduces its shares/stocks in the market. Those stocks are being purchased by the people and institutions trading in the stock market. The capital which the company earns by listing and selling its shares is used by the company to expand its business, create infrastructure, invest in Research and Development etc. The price at which the company introduces its shares in the primary market is termed as the Face Value or Par Value. Always remember the Face Value is that value at which the shares are listed in the IPO. After the shares have been sold first time then they are sold again and again through the dematerialised accounts of people where they can purchase and sell shares. This second type of market in which the already sold shares of primary market are traded are known as Secondary Markets.

While tackling with questions of Shares Stocks and Debentures you will see statements like 10 % stock at 104. This means that 10 % is the dividend declared by the company on the share and Rs. 104 is the market price of the share.

What does Rate of Return Means ?

The rate of return is calculated by keeping the market price as base. The money through dividend is measured keeping market price as the base.

What does Dividend Means ?

Obviously when company listed its shares and investors are investing their money, they would want return on their investment. So at the end of the financial year every company declares the dividend to its shareholders out of its profit. This dividend becomes the returns for the shareholders of the company. The dividend of the company is always computed keeping the base as face value of the share. So please keep in mind that dividend is not calculated on the market price of the share, it is always calculated on the face value.

Whenever we say that shares are quoting at premium we mean that the current market price of the share is more than its face value while when we say that the shares are quoting at discount this means that the current market price of the shares is less than the face value of the share.

What does Brokerage Means ?

Whenever we sell and purchase shares through a stockbroker who advises people about which company's shares they should purchase or sell. The brokerage charges are applied on the selling and purchasing of shares both and these charges are applied on the market price of the shares on which they are sold and purchased. The concept of brokerage has been explained in detail in this video with appropriate questions solved.

The questions discussed in the video are listed below - 

Question 1. At a market price of Rs. 500, Ram and Shyam invested Rs. 50000 and Rs. 100000 respectively to buy shares of Reliance Communications Limited. The company announces a dividend of 20 %. If the face value/par value of the shares is Rs. 100, then what is the difference in their earnings from these shares ??

Question 2. What is the difference in the yearly income when an investor transfers his stock of Rs.144000 invested in company A to company B ? Company A stocks are selling at a premium of Rs. 60 over their face value of Rs. 100 and company B stocks are selling at a discount of Rs. 2 over its face value of Rs. 10. Company A pays a dividend of 20 % and company B pays a dividend of 10 %.

Question 3. The par value of the shares of company X and Y is Rs. 10. The market price of the shares are Rs. 40 and Rs. 50 respectively. Find the ratio of the return on investment for an investor if the dividends are 20 % and 40 % respectively. Investment in both the cases is the same.

Question 4. The ratio of investments in two shares is 1:1. The ratio of dividends is 2:1 and the ratio of the income from each is 2:1. Find the ratio of their market prices provided that the face value of the shares are in the ratio 3:1

Question 5. A man owned Rs. 25000 worth of 6 % stock. When it was quoting at Rs. 228 he sold it and invested the proceeds in 7.5 % stock quoting at Rs. 135, so that his annual income doubled. How much money was he left with him or how much more money was he required to bring in ?

Question 6. Aloknath invested Rs. 3120 in 8 % stock at Rs. 104, Niharika invested Rs. 3800 in 5 % stock at Rs. 95. Who will get more income at the end of the year ? Par value or face value of each share is Rs. 100

Question 7. Raman invests Rs. 19400 in 5 % stock at Rs. 97. He then sells it when it is quoting at Rs. 104. He then reinvests this money in 4 % stock at Rs. 100, which he sells when the stock is quoting Rs. 105. Find the overall profit in the transaction ?

Question 8. A man invested Rs. 4444 in the shares of face value Rs. 100 and at 15 % dividend, his income was Rs. 600. Find the quoted price/market value of each share if brokerage is 1 %.

Question 9. A man has income of Rs. 1500 by investing in 15 % debentures of face value of Rs. 100 and available for Rs. 104. If the brokerage is 1 %, what is his investment ?

Question 10. A man buys 500 debentures of face value of Rs. 100 each at Rs. 95 and sells the same when the price rises to Rs. 98. If brokerage is 2 % find the gain or loss percentage.