Why a 10% Dividend Does Not Mean a 10% Return on Your Money
Tell face value from market value, count how many shares an investment buys at par, at a premium or at a discount, calculate dividend income and percentage return, compare investments, and solve inverse share problems.
What does it mean to own shares in a company?
A company raises money by dividing its capital into small equal parts called shares. Buy a share and you own a tiny part of the company. When the company makes a profit, it may pay shareholders a dividend.
The key idea of this chapter is that a share has two prices: the fixed value printed on it, and the changing price at which it is bought and sold. This chapter covers both values, dividend income, percentage return and reverse problems.
The key idea of this chapter is that a share has two prices: the fixed value printed on it, and the changing price at which it is bought and sold. This chapter covers both values, dividend income, percentage return and reverse problems.
How do nominal value and market value differ, and how many shares can you buy at par, at a premium or at a discount?
The nominal or face value (FV) is the fixed value printed on a share, while the market value (MV) is the price at which it is actually bought; the number of shares bought is the investment divided by the market value.
- At par —
- At a premium —
- At a discount —
Worked example 1 — premium. ₹100 shares are available at a premium of ₹20. How many can be bought for ₹36000?
Worked example 2 — discount. ₹50 shares are available at a discount of ₹10. How many can be bought for ₹20000?
Worked example 3 — percentage premium. ₹100 shares at a premium: .
An everyday example. Share prices shown on a business news channel change through the day, but the face value of each share stays exactly the same.
The substance. Always divide by the market value, since that is what you actually pay.
- At par —
- At a premium —
- At a discount —
Worked example 1 — premium. ₹100 shares are available at a premium of ₹20. How many can be bought for ₹36000?
Worked example 2 — discount. ₹50 shares are available at a discount of ₹10. How many can be bought for ₹20000?
Worked example 3 — percentage premium. ₹100 shares at a premium: .
An everyday example. Share prices shown on a business news channel change through the day, but the face value of each share stays exactly the same.
The substance. Always divide by the market value, since that is what you actually pay.
How do you calculate the annual dividend and total income from a shareholding?
Dividend is declared as a percentage of the face value, so annual income equals the number of shares times the rate of dividend times the face value.
Worked example 1. The shares of face value ₹100 bought above pay an dividend.
Worked example 2. The shares of face value ₹50 pay a dividend.
An everyday example. A grandparent who holds shares receives a dividend in the bank account once the company announces it, based on the number of shares held.
The misconception. The dividend is not calculated on the market value. Taking of ₹120 gives ₹9.60 a share, which is wrong; it is of the ₹100 face value.
Worked example 1. The shares of face value ₹100 bought above pay an dividend.
Worked example 2. The shares of face value ₹50 pay a dividend.
An everyday example. A grandparent who holds shares receives a dividend in the bank account once the company announces it, based on the number of shares held.
The misconception. The dividend is not calculated on the market value. Taking of ₹120 gives ₹9.60 a share, which is wrong; it is of the ₹100 face value.
How do you calculate the percentage return on an investment and compare two investments?
Divide the annual income by the sum invested and multiply by 100; a quick equivalent is the dividend rate times the face value divided by the market value.
Worked example 1.
Worked example 2.
Comparing two investments. Which is better: ₹100 shares at ₹150, or ₹50 shares at ₹75?
B gives the better return, even though its dividend rate difference looks small.
An everyday example. Before investing, families often compare the return on shares with the interest on a fixed deposit.
The substance. Buying at a premium makes the return lower than the dividend rate; buying at a discount makes it higher.
Worked example 1.
Worked example 2.
Comparing two investments. Which is better: ₹100 shares at ₹150, or ₹50 shares at ₹75?
B gives the better return, even though its dividend rate difference looks small.
An everyday example. Before investing, families often compare the return on shares with the interest on a fixed deposit.
The substance. Buying at a premium makes the return lower than the dividend rate; buying at a discount makes it higher.
How do you find the market value, rate of dividend or sum invested from the income or return?
Work backwards through the same formulas: find the number of shares from the income, then use it with the investment, face value or market value to get the unknown.
Worked example 1 — market value. A man invests ₹45000 in ₹100 shares and gets an income of ₹3000.
Worked example 2 — rate of dividend. shares of face value ₹25 give an income of ₹1500.
Worked example 3 — sum invested. How much must be invested in ₹100 shares at ₹125 to get an income of ₹4800?
Return: .
An everyday example. Someone planning a yearly income of ₹4800 from dividends can use this working to see how much money they need to invest.
The substance. The number of shares is the bridge between income and investment in almost every inverse problem.
Worked example 1 — market value. A man invests ₹45000 in ₹100 shares and gets an income of ₹3000.
Worked example 2 — rate of dividend. shares of face value ₹25 give an income of ₹1500.
Worked example 3 — sum invested. How much must be invested in ₹100 shares at ₹125 to get an income of ₹4800?
Return: .
An everyday example. Someone planning a yearly income of ₹4800 from dividends can use this working to see how much money they need to invest.
The substance. The number of shares is the bridge between income and investment in almost every inverse problem.
Exam tip
What earns full marks on shares and dividends?
Write FV and MV clearly at the start, find the number of shares, and use FV for dividend but MV for investment.
- Premium adds to FV; discount subtracts from it
- Number of shares investment MV
- Dividend per share rate FV
- Income shares dividend per share
- Return income investment
- **Leave fractions such as exact unless asked to round
The trap. Using MV to calculate dividend. Dividend always uses face value**; market value only decides how many shares your money buys.
- Premium adds to FV; discount subtracts from it
- Number of shares investment MV
- Dividend per share rate FV
- Income shares dividend per share
- Return income investment
- **Leave fractions such as exact unless asked to round
The trap. Using MV to calculate dividend. Dividend always uses face value**; market value only decides how many shares your money buys.
Did you know
Why can a share's market price rise far above its face value?
A share with a face value of ₹10 may trade for many hundreds of rupees. The printed value has not changed — people's opinion of the company has.
If investors expect a company to grow and pay good dividends in future, many want to buy its shares, and the price rises. If they expect losses, the price falls, sometimes below face value.
Face value is fixed; market value reflects demand. That is why the same dividend can give very different returns to people who bought at different times.
If investors expect a company to grow and pay good dividends in future, many want to buy its shares, and the price rises. If they expect losses, the price falls, sometimes below face value.
Face value is fixed; market value reflects demand. That is why the same dividend can give very different returns to people who bought at different times.
Exam relevance
Are shares and dividends tested in JEE Main, or only in the ICSE board exam?
Shares and dividends are not part of the JEE Main syllabus; they are a Class 10 ICSE board-exam topic, usually set as multi-part word problems.
What carries forward. The chain of proportional steps — investment to number of shares to income to return — is the same unitary reasoning used in Class 11 Some Basic Concepts of Chemistry, where mass is converted to moles to particles, a foundation chapter for both JEE Main and NEET.
Board versus competitive emphasis. The board paper rewards clearly labelled steps; competitive exams reward setting up conversions quickly and without unit errors.
The trap that costs marks. Mixing up the two values — face value for dividend, market value for cost.
What carries forward. The chain of proportional steps — investment to number of shares to income to return — is the same unitary reasoning used in Class 11 Some Basic Concepts of Chemistry, where mass is converted to moles to particles, a foundation chapter for both JEE Main and NEET.
Board versus competitive emphasis. The board paper rewards clearly labelled steps; competitive exams reward setting up conversions quickly and without unit errors.
The trap that costs marks. Mixing up the two values — face value for dividend, market value for cost.
Key takeaways
What must you be able to do from this part?
- FV is printed and fixed; MV is the buying price
- At par ; premium ; discount
- Shares investment MV: ₹36000 at ₹120 buys
- Income shares rate FV :
- Return income investment , or rate FV MV
- Premium lowers the return; discount raises it
- Inverse problems: find the number of shares first
Make up two share offers with different face values, prices and dividend rates, and decide which gives the better return before checking with the formula.
- At par ; premium ; discount
- Shares investment MV: ₹36000 at ₹120 buys
- Income shares rate FV :
- Return income investment , or rate FV MV
- Premium lowers the return; discount raises it
- Inverse problems: find the number of shares first
Make up two share offers with different face values, prices and dividend rates, and decide which gives the better return before checking with the formula.