Shares and Stocks

Aptitude

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Important notes and formula

What is Capital?

The total amount of money required by a company to run is called the Capital or Stock Capital of the company.

What is a share?

When stock capital of a company is divided into smaller unit then each such unit is called a share or stock.

Who is a Share or Stock holder?

A person who holds stock or share of a company is called the Share or Stock holder.

What is a dividend?

The profit that is shared with the stock holders when a company makes a profit is called the dividend.

Dividend is payed annually by the company to the share holders based on the shares or percentage of the share holders.

What is a share certificate?

When a person buys a share or stock, the company issues a share certificate which contains the value of each shares and the number of shares issued to the person.

What is a Face Value?

The value of the share as written on the share certificate is called the face value of stock or share. Face value is called as Nominal Value or Par Value.

What is a Stock Exchange?

Stocks of companies are bought and sold in an open market through stock brockers in a place called Stock Exchange.

Some of the well known stock exchange market are NASDAQ of USA, BSE of India, etc.

What is a Market Value?

The value at which a stock of a company is sold in the stock exchange market is called the Market value of the stock for the company.

Different Type of Market Value

At Premium or Above Par

When the market value of a share is more than the face value the share is said to be At Premium or Above Par.

At Par

When the market value of a share is same as the face value the share is said to be At Par.

At Discount or Below Par

When the market value of a share is less than the face value the share is said to be At Discount or Below Par.

Example: At Premium
If a stock of Rs. 100 is listed at premium of 20 then the market price of that stock is Rs. (100+20) i.e., Rs. 120.

Example: At Discount
If a stock of Rs. 100 is listed at discount of 20 then the market price of that stock is Rs. (100-20) i.e., Rs. 80.

Who is a Broker?

A broker is an individual person that arranges transactions between a buyer and a seller for a commission when the deal is executed.

What is a Brokerage?

The commission or charge a broker takes for a deal is called the Brokerage.

About brokerage.

  • When a stock is bought or purchased, brokerage is added to the Cost Price.
  • When a stock is sold, brokerage is subtracted from the Selling Price.

Points to note

  • Face value of a share always remains the same.
  • Market value of a share changes depending on the market condition.
  • Dividend is always calculated on the Face value of the share

Number of Shares held by a share holder

= Total Face Value of all shares
Face Value of 1 share

= Total Income
Income from 1 share

= Total investment
Investment in 1 share

Example

If a Rs. 100 share at 10% is at 120 premium. This means
Face value of the share is Rs. 100
It's Market value is Rs. 120
Annual dividend rate per share is 10%
So, for each share dividend = Rs. (100 x 10%) = Rs 10.
If a person makes an investment (expense) of Rs. 120 to buy a share he will receive Rs 10 as annual dividend (income).
Rate of interest per annum = Annual Income from an investment of Rs. 100
= Rs. (10 x 100) / 120
= 8.33%

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