Which is the better investment; 4.5% shares at Rs.120 or 6.5% shares at Rs.132?(The nominal value of the share is Rs.100)
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First investment
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Second investment
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Both are good
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Can't say(incomplete data)
To compare investments, calculate the actual return percentage based on market price. First: (4.5/120) x 100 = 3.75% return. Second: (6.5/132) x 100 = 4.92% return. The second investment gives a higher actual return percentage (4.92% vs 3.75%), making it the better investment.
Dividend yield = (dividend rate ÷ market price) × 100, using nominal value Rs.100. For the first investment: 4.5% shares at Rs.120 → yield = 4.5/120 × 100 = 3.75%. For the second: 6.5% shares at Rs.132 → yield = 6.5/132 × 100 ≈ 4.92%. The second investment returns nearly 1.2 percentage points more per rupee invested, making it the better investment on a pure yield basis — the standard criterion for comparing 'which is the better investment' between two fixed-dividend shares purchased at different market prices. The DB's marked answer ('First investment') is the opposite of the correct conclusion; the first option actually has the lower effective return of the two.