Stocks & Shares
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Important Formulas & Concepts
Study MaterialStocks & Shares
Stocks and Shares is an important chapter in Quantitative Aptitude that combines mathematics with basic financial concepts. Questions from this chapter are frequently asked in Banking, SSC, Railway, Insurance, Defence, MBA entrance, and other competitive examinations.
This chapter mainly deals with:
- Shares and stock market basics
- Face value and market value
- Dividend calculations
- Premium and discount concepts
- Brokerage calculations
- Investment and annual income
- Comparison of investments
- Profit and yield calculations
Understanding formulas and concepts properly helps candidates solve stock and share aptitude problems quickly and accurately.
Introduction to Stocks & Shares
To start a large business or industry, a huge amount of money is required. Since it may not be possible for a single person to arrange such a large amount, several individuals contribute money together to form a company known as a Joint Stock Company.
The company divides its total capital into small equal parts called shares or stocks.
People who purchase these shares become shareholders of the company.
Difference Between Stock and Share
| Term | Meaning |
|---|---|
| Stock | General ownership in one or more companies |
| Share | Ownership unit of a specific company |
Important Terms in Stocks & Shares
1. Stock Capital
The total amount of money required to run a company is called its Stock Capital.
Stock Capital = Total Capital of Company
2. Shares or Stock
The total capital of a company is divided into equal units called shares.
Each investor receives a share certificate mentioning:
- Number of shares
- Value of each share
3. Shareholder
A person who purchases shares of a company is called a Shareholder or Stockholder.
4. Dividend
The annual profit distributed among shareholders is called Dividend.
Dividend is generally expressed as:
- Percentage of face value
- Amount per share
Dividend is always calculated on Face Value.
5. Face Value
The original value printed on the share certificate is called:
- Face Value
- Nominal Value
- Par Value
Face value generally remains fixed.
6. Market Value
The price at which shares are bought or sold in the market is called Market Value.
Market value changes regularly according to market conditions.
Types of Market Position
| Condition | Meaning |
|---|---|
| At Premium | Market Value > Face Value |
| At Par | Market Value = Face Value |
| At Discount | Market Value < Face Value |
Premium Concept
If a ₹100 share is quoted at premium of ₹15:
Market Value = ₹100 + ₹15 = ₹115
Discount Concept
If a ₹100 share is quoted at discount of ₹8:
Market Value = ₹100 − ₹8 = ₹92
7. Brokerage
The commission charged by brokers for buying or selling shares is called Brokerage.
| Transaction | Brokerage Effect |
|---|---|
| Purchase | Added to Cost Price |
| Sale | Subtracted from Selling Price |
Important Formulae
1. Dividend Formula
Dividend = (Dividend % × Face Value) / 100
2. Income Formula
Income = Number of Shares × Dividend per Share
3. Number of Shares Formula
Number of Shares = Investment / Market Value of One Share
4. Investment Formula
Investment = Number of Shares × Market Value
5. Rate of Return Formula
Rate of Return = (Dividend / Market Value) × 100
Important Concepts
Concept 1: Dividend Always Depends on Face Value
Even if market value changes, dividend is always calculated on face value.
Dividend is never calculated on Market Value.
Concept 2: Face Value Remains Constant
Face value usually does not change frequently.
Market value changes according to demand and supply.
Concept 3: Better Investment
The investment giving higher income for same investment amount is considered better.
Understanding Stock Notation
Suppose:
₹100, 8% stock at ₹120
It means:
- Face Value = ₹100
- Dividend = 8% of ₹100 = ₹8
- Market Value = ₹120
- Investment of ₹120 gives annual income of ₹8
Comparison of Investments
| Stock | Income on ₹100 Investment |
|---|---|
| 10% stock at ₹125 | ₹8 |
| 12% stock at ₹150 | ₹8 |
Both investments provide same return.
Quick Revision Formula Table
| Concept | Formula |
|---|---|
| Dividend | (Dividend % × Face Value)/100 |
| Income | Number of Shares × Dividend |
| Number of Shares | Investment / Market Value |
| Investment | Shares × Market Value |
| Rate of Return | (Dividend / Market Value) × 100 |
Important Exam Tips
- Dividend is always calculated on face value.
- Market value changes frequently.
- Brokerage increases purchase cost.
- Brokerage decreases selling price.
- Learn premium and discount concepts clearly.
- Memorize all important formulas.
- Practice investment comparison questions regularly.
Common Mistakes to Avoid
- Calculating dividend on market value.
- Ignoring brokerage.
- Confusing face value with market value.
- Using wrong percentage calculations.
- Calculation mistakes in investment problems.
Stocks & Shares is an important aptitude topic that combines arithmetic calculations with financial concepts. Strong understanding of formulas and terminology helps candidates solve investment and dividend-based problems quickly and accurately in competitive examinations.