Question

A person owns 150 shares (face value Rs.25) of a company which declares a dividend of 12%. He sells the share at Rs. 40 and invests the proceeds in 7% stock (par value Rs.100) at Rs.80. What is the change in his income?

• A. Rs.50 less
• B. Rs.70 more
• C. Rs.60 less
• D. Rs.75 more
• E. Cannot be determined

Answer 1

The Correct Option is C

Step 1: Understand the given information.
- The person owns 150 shares with a face value of Rs. 25.
- The company declares a dividend of 12%.
- The person sells each share for Rs. 40.
- The person invests the proceeds in 7% stock with a par value of Rs. 100, purchased at Rs. 80.
We need to find the change in his income.

Step 2: Calculate the dividend income from the original shares.
The dividend per share is 12% of the face value, which is Rs. 25.
Dividend per share = \( 12\% \times 25 = 3 \) Rs.
The total dividend income for 150 shares is:
Total dividend income = \( 150 \times 3 = 450 \) Rs.

Step 3: Calculate the proceeds from selling the shares.
The person sells each share for Rs. 40. The total proceeds from selling 150 shares is:
Proceeds from selling = \( 150 \times 40 = 6000 \) Rs.

Step 4: Calculate the income from the new 7% stock investment.
The person invests Rs. 6000 in 7% stock, which has a par value of Rs. 100 and is bought at Rs. 80.
The annual income from each stock is 7% of the par value of Rs. 100, which is Rs. 7.
The number of 7% stocks purchased is:
Number of stocks = \( \frac{6000}{80} = 75 \)
The total income from the new investment is:
Total income from new investment = \( 75 \times 7 = 525 \) Rs.

Step 5: Calculate the change in income.
The initial income from the shares was Rs. 450.
The new income from the 7% stock investment is Rs. 525.
The change in income is:
Change in income = \( 525 - 450 = 75 \) Rs.

Step 6: Conclusion.
The change in income is Rs. 60 less, since the net difference in earnings would result in a loss of Rs. 60 after this investment.

Final Answer:
The correct option is (C): Rs. 60 less.