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# A person buys a share for \$ 50 and sells it for \$ 52 after a

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Joined: 29 Aug 2003
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A person buys a share for \$ 50 and sells it for \$ 52 after a [#permalink]

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28 Nov 2003, 23:54
This topic is locked. If you want to discuss this question please re-post it in the respective forum.

A person buys a share for \$ 50 and sells it for \$ 52 after a year. What is the total profit made by him from the share?
(I) A company pays annual dividend
(II) The rate of dividend is 25%

Dont we have to take the face value of the share into consideration??

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29 Nov 2003, 00:06
4128851 wrote:
A person buys a share for \$ 50 and sells it for \$ 52 after a year. What is the total profit made by him from the share?
(I) A company pays annual dividend
(II) The rate of dividend is 25%

Dont we have to take the face value of the share into consideration??

You are correct that the you cannot get the answer to the question "as it is written".

In practice, the dividends for common stock are typicaly not quoted by X% per share, but rather in \$\$ per share simply because the face value of the stock is essentially meaningless once the stock is traded. The dividend could also have a %yield, but you would have to specify the exact date/time of that yield as it is calculated from the price at that instant. Since the dividend is typically set by the board and not subject to fluctuatation by some other metric, it is quotes almost universally in \$ per share.
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AkamaiBrah
Former Senior Instructor, Manhattan GMAT and VeritasPrep
Vice President, Midtown NYC Investment Bank, Structured Finance IT
MFE, Haas School of Business, UC Berkeley, Class of 2005
MBA, Anderson School of Management, UCLA, Class of 1993

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01 Dec 2003, 23:20

50 bucks is what he will earn the dividend on. Since it is 25% - he gets \$12.50 in dividend.

Hence his total earnings are 2 + 12.5.

Reg. ur explaination that dividend is in \$'s rather than %, I tend to disagree too. Its a practice to give dollar values, but essentially it is %.

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01 Dec 2003, 23:40
My contention is that the dividend on a share depends on the face value of the share. The face value could be 1, 10 , 100 etc.
So the answer to this question cannot be found??

Pls correct me if i m wrong!!

Gaurav.

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01 Dec 2003, 23:46
maverick_ucdc wrote:

50 bucks is what he will earn the dividend on. Since it is 25% - he gets \$12.50 in dividend.

Hence his total earnings are 2 + 12.5.

Reg. ur explaination that dividend is in \$'s rather than %, I tend to disagree too. Its a practice to give dollar values, but essentially it is %.

Sorry. You are WRONG. Dividends are always announced in \$ per share. This amount is constant regardless of share price (i.e., is a fixed amount) until the board of directors announces another change. Of course, at any given moment in time, you can calculate the dividend YIELD which is in percentage. This is NOT done backwards, i.e., the dividend paid is never dependent on the underlying stock price and paid as a percentage of it.
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Best,

AkamaiBrah
Former Senior Instructor, Manhattan GMAT and VeritasPrep
Vice President, Midtown NYC Investment Bank, Structured Finance IT
MFE, Haas School of Business, UC Berkeley, Class of 2005
MBA, Anderson School of Management, UCLA, Class of 1993

Kudos [?]: 241 [0], given: 0

01 Dec 2003, 23:46
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# A person buys a share for \$ 50 and sells it for \$ 52 after a

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