Amit owns 1500, ₹ 25 shares of a company which declares a dividend of 14%. He sells the shares at ₹ 40 each and invests the proceeds in 8%, ₹ 100 shares at ₹ 80. What is the change in his annual dividend income ?

Given,

Initially,

Number of shares = 1500

Face Value = ₹ 25

Dividend Rate = 14%

Initial Annual Income = No. of shares × Rate of div. × N.V. of 1 share

$= 1500 \times \dfrac{14}{100} \times 25$

= 750 × 7

= ₹ 5,250.

Selling price per share = ₹ 40

By formula,

Sale Amount = No. of Shares × Selling price per share = 1500 × 40 = ₹ 60,000.

For new Investment,

Face Value = ₹ 100

Dividend Rate = 8%

Market Value = ₹ 80

By formula,

$\text{Number of shares} = \dfrac{\text{ Investment }}{\text{ Market value of each share}} \\[1em] = \dfrac{60000}{80} \\[1em] = 750. \\[1em] \text{New Annual Income} = \text{No. of shares} \times \text{Rate of div.} \times \text{N.V. of 1 share}\\[1em] = 750 \times \dfrac{8}{100} \times 100\\[1em] = ₹ 6,000.$

Change in Income = New Annual Income - Initial Annual Income = 6,000 - 5,250 = ₹ 750.

Hence, Amit's annual dividend income increases by ₹ 750.