A man invested in a company paying 12% dividend on its share. If the percentage return on his investment is 10%, then the shares are:

1. at par

2. below par

3. above par

4. cannot be determined

Given,

Dividend rate = 12% of face value.

So, if face value = ₹100, dividend = ₹12.

Return = 10%

By formula,

Return % = $\dfrac{\text{Dividend on one share}}{\text{Investment on one share}} \times 100\%$

Investment on one share equals to the market value of the share.

Substituting values we get :

$\Rightarrow 10 = \dfrac{\text{12}}{\text{Market value}} \times 100 \\[1em] \Rightarrow \text{Market value} = \dfrac{12}{10} \times 100 \\[1em] \Rightarrow \text{Market value} = ₹120.$

Since market value > face value, the shares are said to be above par.

Hence, option 3 is the correct option.