Question

Which is the better investment:
16% Rs. 100 shares at 80 or 20% Rs. 100 shares at 120?

Answer 1

Hint: In this question we need to understand the given statements such as in first case 16% represents the rate of dividend, Rs. 100 is the face value of shares and Rs. 80 is the market values of the shares to decide the better investment find the rate of return for both given cases and choose the better investment wisely.

Complete step-by-step answer:
First let’s identify the values given in the statements
For case 1 i.e. 16% Rs. 100 shares at 80 here 16% is the rate of dividend, Rs. 100 is the face value of shares and Rs. 80 is the market value of the shares
For case 2 i.e. 20% Rs. 100 shares at 120 here 20% is the rate of dividend, Rs. 100 is the face value of shares and Rs. 120 is the market value of the shares
Since we have to find the better investment we will find the rate of return in both the cases
Now to find the rate of return using the formula i.e. face value \[ \times \] rate of dividend = market value \[ \times \] rate of return
Substituting the given values of case 1 in the above formula
$100 \times 16\% = 80 \times $ Rate of return
$ \Rightarrow $ Rate of return = \[\dfrac{{100}}{{80}} \times 16\% \]
$ \Rightarrow $ Rate of return = \[20\% \]
For case 2 substituting the values in the formula of rate of return
$100 \times 20\% = 120 \times $ Rate of return
$ \Rightarrow $ Rate of return = \[\dfrac{{100}}{{120}} \times 20\% \]
$ \Rightarrow $ Rate of return = \[16.6\% \]
Since the rate of return for case 1 is greater than case 2 therefore case 1 i.e. 16% Rs. 100 shares at 80 is the better investment.

Note: Investment is the term which is used in business, purchasing, according to the general definition investment is the process of putting money in some work to expand the profit in the work by purchasing any applications or in order to increase the business or work, this act of investment is done hoping to get profit by the work or application.