Best explanation to understand and solve the stocks and shares problems.
Stocks and shares are the next set of aptitude questions that will be asked in competitive exams and entrance exams.
This topic is about companies and its stocks and shares in the market. We have given the explanation for some terms used in this topic and also some important formulas that will help you to work out the aptitude questions.
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There are few important that should be known to a person before entering into the aptitude based on stocks and shares
1. Stock capital: Stock capital is the money that is required to establish or to run a company.
2. Shares or stocks: The whole capital amount is divided into small equal parts. These small parts are shares or stocks.
3. Shareholder or stockholder: The person who purchase the stocks from the company is called the shareholder or stockholder. The company provides share certificates to all the shareholders. This contains information about the shares such as the number of shares allocated for the person and also the value of each share.
4. Dividend: The annual profit distribution among the shareholders is called dividend. It is paid to the shareholder according to number of shares or percentage they hold.
5. Face value: The value of share or stock mentioned in the share certificate held by the shareholder is called face value or nominal value or par value. This value cannot be changed and remains the same.
6. Market value: The shares of different companies are sold and bought in the open market through brokers at stock-exchanges. The price at which a stock is traded in the share market is known as its market value.
- A stock whose market value is more than the face value is said to be a PREMIUM or ABOVE PAR.
- A stock whose face value and market value are the same, then it is said to be at its PAR.
- A stock whose face value is higher than the market value is said to be at a DISCOUNT or BELOW PAR.
For example: When a Rs. 1000 share is quoted at a premium of 180, then Market value of the stock = 1000 + 180 = Rs. 1180
Similarly, when a Rs. 1000 share is quoted at a discount of 70, then Market value of the share = 1000 – 70 = Rs. 930
Brokerage: Brokerage is the fee or charges that you have to pay to brokers if you are trading in the stock-exchange through brokers. This charge or fee is added to the cost price when a stock is purchased and deducted from selling price when a stock is sold.
Points To Remember
- The face value of the stock or share remains the same always.
- The market value of the stock or share changes often and this makes trading possible.
- The dividend is always paid on the face value of shares.
- The investors generally invest in shares not for annual returns but to earn a profit by selling the shares if its market value increases.
Tips To Clearly Understand The Question
Buy a Rs. 100, 20% of stock at 140 means
- The face value of stock is Rs. 100.
- The annual dividend on the stock is 20% of the face value which is equal to Rs. 20.
- The market value of the stock is Rs. 140.
In this case, the annual investment of Rs. 140 gives income of Rs. 20
So, the rate of interest per annum = Annual income from an investment of Rs. 140
= ( 20 / 140 ) * 100 which is equal to 14.3%