BBA[CA ] Business Mathematics chapter 4th Shares and Mutual Fund

2. Define Share:-
In simple words, a share indicates a unit of ownership of the particular
company.
If you are a shareholder of a company, it implies that you as
an investor, hold a percentage of ownership of the issuing company.
As a shareholder you stand to benefit in the event of the company’s
profits, and also bear the disadvantages of the company’s losses.
When a big industry is to be launched ,several person come together
to raise required capital . These are called promoters of the company
. The capital is devided into small parts called Shares .
The peoplewho purchase Shareholders of the com,pany and in a way they
are the owners of the company .
The Company is managed by a body of person known as Board of
Directors of the company

3. Share Capital
The total Capital of the company is divided into number of small
unit of equal value called ‘Shares ’
TYPES OF SHARES
1. PREFERENCE SHARES
As the name suggests, this type of share gives certain preferential rights as compared
to other types of share. The main benefits that preference shareholders have are:
They get first preference when it comes to the payout of dividend, i. e. a share of the
profit earned by the company
When the company winds up, preference shareholders have the first right in terms of
getting repaid

4. Cumulative preference shares:
Cumulative shareholders have the right to receive arrears on dividend before
any dividend is paid to equity shareholders. For example, if the dividends on
preference shares for the year 2017 and 2018 have not been paid due to
market downturns, preferential shareholders are entitled to receive dividend for
all preceding years in addition to the current one.
Non-cumulative preference shares:
Non-cumulative shareholders cannot claim any outstanding dividend. These
shareholders only earn a dividend when the company earns profits. No
dividends are paid for the prior years.
Convertible preference shares:
As the name suggests, these shares are convertible. Convertible shareholders
can convert their preference shares into equity shares at a specific period of
time. However, the conversion of shares will need to be authorized by the
Articles of Association (AoA) of the company.

5. EQUITY SHARES
Equity shares are also known as ordinary shares. The majority of shares issued
by the company are equity shares. This type of share is traded actively in the
secondary or stock market. These shareholders have voting rights in the
company meetings. They are also entitled to get dividends declared by the board
of directors. However, the dividend on these shares is not fixed and it may vary
year to year depending on the company’s profit. Equity shareholders receive
dividends after preference shareholders.

6. Definition of 'Dividend'
Definition: Dividend refers to a reward, cash or otherwise, that a company
gives to its shareholders. Dividends can be issued in various forms, such as
cash payment, stocks or any other form. A company’s dividend is decided by
its board of directors and it requires the shareholders’ approval. However, it
is not obligatory for a company to pay dividend. Dividend is usually a part of
the profit that the company shares with its shareholders.
A dividend is a share of profits and retained earnings that a
company pays out to its shareholders. When a company
generates a profit and accumulates retained earnings, those
earnings can be either reinvested in the business or paid out
to shareholders as a dividend. The annual dividend per share
divided by the share price is the dividend yield.

7. Debenture
A debenture is an instrument used by a lender, such as a bank, when providing capital
to companies and individuals. It enables the lender to secure loan repayments against
the borrower’s assets – even if they default on the payment.
A debenture can grant a fixed charge or a floating charge. A fixed charge is normally
taken out against a tangible asset such as property. It enables the lender to take
ownership of the borrower’s assets and sell them off in the event of a payment
default. With a fixed charge, the borrower would not be able to sell the asset without
the lender’s consent.

8. Definition of 'Bonus Share'
Definition: Bonus shares are additional shares given to the current shareholders
without any additional cost, based upon the number of shares that a shareholder owns.
These are company's accumulated earnings which are not given out in the form of
dividends, but are converted into free shares.
Stock Exchange: Definition, Meaning & Basics
A stock exchange is a marketplace, where financial securities issued by
companies are bought and sold. They are part of the broader capital market ecosystem.
Securities issued by companies, such as shares and bonds, are traded on the stock
exchanges, after they have been issued in the primary market.

9. Market Value
Market value per share is the current value of the stock. This is the
price at which market values the stock. For example, if a stock is
trading at a share price of Rs 100, then this is the market value per
share of that company. The market value per share of a company
fluctuates continuously throughout the trading time period.
Further, the total market value of a company, also referred as
the market capitalization of the public company, is calculated by
multiplying the current share price of the company by its total
outstanding shares.

10. Face Value
Face value (also known as par value) is the value of a company
listed in its books and share certificate. The company decides
the face value when it offers shares at the time of issuance.
The face value of a share is fixed (until the company decides
to split or reverse-split the shares).
For example, during the IPO of Avenue Supermart (Parent
company of D’mart Supermarkets), the management decided
the face value per share to be Rs 10. Here is the details:

12. Mutual Fund :-
A mutual fund is a professionally-managedinvestment scheme, usually run by an asset
management company that brings together a group of people and invests their money
in stocks, bonds and other securities.

18. Examples
1. A sum of rs 1350 was invested in 6% stock at 87 when it rose to 91 all the shares were
sold . In the meanwhile dividend was received . For purchasing the brokerage was 3% .
While selling it was 2% . What is the total gain or loss in the total transaction .
Solution :- Since rate of Commission is 3% for purchase ,each shares cost (87+3 )= 90
In Rs 1350 ,a person will get 1350/90 = 15 shares
The dividend receved on it will br (15 * 6 )= Rs 90
While elling Shares amount received per share will be (91 -2 )=Rs 89
Amount Received by selling all shares (15 * 89 )= 1335
Total gain (1335+90 – 1350 )= Rs 75 .

19. 2.Mr pradeep invested Rs 3100 in 6% shares at Rs 124 . How much Divedend will be get
(face value =100 Rs ).
Solution :-
Market value of the shares = Rs 124
Amount invested = Rs3100
Number of shares Purchased = 3100/124= 25
Face value of each shares = Rs 100
Face value of 25 shares = 2500 Rs
Mr Recievd dividend at 6%
Dividend received by him = Rs 2500 * 6/100
= Rs 150 .

20. 3. Which of the following is the better investment ?
1. 8% at Rs 80/-
2. 15% at rs 120/- [ Face value = rs 100 ]
Solution :-
Two companies have shares 8 % at *) and 15% at 120 .
The face value in each case is 100 .
Let us find Percentage return in each case .
For the First Company :- for rs 80 the return is 8 for rs 100 the return is
100/80 * 8= 10
For the seconf Company : for Rs 120 the return is 15 for Rs 100 the return is
100/120 * 15 = 14.5
As the percentage return in second case is more than first case , Investment in the
second company is more profitable .

21. 4. Amit invest Rs 10000 in a mutual fund . Entry Load is 2% and exit load is 1% before
2 years and nil after 3 years . He recieves dividend of Rs 1000 , Rs 1100, and 1200 for
3 years in a cumualtive dividend scheme . What is his Total rate of return
And Annualised rate of return , if the redeems all the units after 3 years .
Solution :- Du to entry load of 2% his outgo is
10000+ 200= 10200
He has recived total amount of = 10000+ 1000+ 1100 +1200 =13300
Since he sells th eunit after 3 years , he does not have any exit load .
Total Return = 13,300-10,200 = 3100
Rate of return 3100 * 100/10200 = 30.39
Annualised return = 30.39/3=10.13

22. 5 Salman invested Rs 50000 in a mutual fund scheme with nil entry load and 2% exit
load . He recieeed a dividend of Rs 3000,4000, and 4500 for first ,second and third
year .He redeemed all his units after 3 years . What is the rate of return ?
Solution :-
Since the rate of exit load is 2% total exit load on units of Rs 50000 is Rs 1000
At the end 3 years . Salman recives
Rs 50000 + 3000 + 4000 + 4500 -1000 = 60,500
His net gain is = 10500
Total rate of retun = 10500 * 100/50000= 21%
Annualised rate of return is 7 % .