Find the gain or loss made by a shareholder.

[Chikis]

I would like to start by giving some little informations about the currency am using.

N stands for Naira and k for kobo.

100 kobo = N1

Here we go:

Find the gain or loss made by a shareholder who buys 90 75k shares at 70k each and sells them at 76k each.

 

Market price for each share = CP, cost price for each share = 70k

 

CP for 90 shares = [MATH](70\times90)k[/MATH] = 6300k = N63

 

Selling price for 90 shares = [MATH](76\times90)k[/MATH] = 6840k = N68.4

From want we have obtained so far, we can see that the share holder made gain. He made gain of N(68.4-63) = N5.4

My concern here is that the answer provided for the question is not saying the same thing as the answer obtained in my work. I don't know if there is anything am not doing well in this problem. Please I need help and I stand to be corrected if there is any error or poor knowledge of ideas as it has to do with this problem. Thank you.

[fiveworlds]

Well you could look at it as the unit gain. For instance if you buy at 70k and sell at 76k that's a net gain per unit of 6k. That is unless there is some tax on investment. So this simplifies the problem to.

 

6(90)k=540k=N5.4

[Chikis]

So do you think my answer is correct without any shadow of doubt?

Edited August 8, 2015 by Chikis

[swansont]

What is the answer that is given?

 

How do you buy a 75k share for 70k? Is this purely a math exercise, or is there some accounting/business principle being tested?

[fiveworlds]

How do you buy a 75k share for 70k? Is this purely a math exercise, or is there some accounting/business principle being tested?

 

It is quite simply really. Say I am a big company and I sell 100000 shares to you at 75k a share. Then one year the company is doing rather bad maybe the country is in recession and you think you should run with the most money you can get. You could sell your shares for 70k a share and probably not do too bad because the company will have paid you dividends over time. Then the company picks up and the market value of the shares in the big company go up to 76k a share. So the person who bought off you decides it is time to sell I probably won't get a better price anyway.

 

There are other things that could affect share price. For instance the company may decide that the shares they sold you don't allow you to have a controlling interest in the company. Or alternatively if the company decides to issue new shares because the value of your shares is dependent on the % of shares you have within the company. Say if I own 51% of the shares I have a controlling interest in my company and am therefore the boss and nobody can overrule me or make decisions without me.

Edited August 8, 2015 by fiveworlds

[Strange]

Why would you describe that as a 75k share, just because that happened to be its price at some point in the past? The only relevant information seems to be the price you buy at and the price you sell at.

[fiveworlds]

 

That's how they turn up on the company's balance sheet. For instance here shares are 0.1$ each with 2000 shares already sold by the company. The company is authorized to sell a further 8000 shares which haven't yet been sold. The following shows an example balance sheet with £1 shares,

 

Edited August 8, 2015 by fiveworlds

[Sensei]

I am doing such calculations every day during purchasing and selling real stock shares.

Even wrote special application in C/C++ for it.

 

Yours must be simple excersise for school.

 

In reality you must take into account provision from brokers and stock market.

We have here 0.35% provision for buying through Internet platform,

calling to human broker cost much more and depends on amount of money in transaction, there used to be 1.5%-3.5%. Not following it by myself, as I am not using call-buy,

and if we sell same day, 0.2% provision for day trading, otherwise 0.35% for selling.

 

For instance, I buy 1000 shares for 14.

14 * 1000 * ( 1 + 0.35/100 ) = 14000 * 1.0035 = 14049, giving average 14.049 per share (not plain 14, as one layman could think!)

If I sell them for 14.1 the next day, stock broker will add to my account:

14.1*1000 * ( 1 - 0.35/100 ) = 14100 * 0.9965 = 14050.65,

and earned will be 14050.65 - 14049 = 1.65

 

(so if you buy and sell for the same price, you will be on minus, because of provision)

 

Additionally there is limit on how low can be provision (for now 5 if I recall correctly).

Above example is much bigger to show this.

 

This 0.35% is variable, and different broker house will have different price.

In my old one there used to be 0.39% and minimum provision 2. But they bankrupt two, three years ago. Had to switch to different broker house.

Edited August 8, 2015 by Sensei

[Chikis]

What is the answer that is given?

The answer given is N10.65.

How do you buy a 75k share for 70k? Is this purely a math exercise, or is there some accounting/business principle being tested?

I can't explain with details but what I will say is this:

the 75k is the norminal or face value of the share. The share was bought by the shareholder below par. I.e the market value of the share is 70k. Shares are not always sold at par with their norminal value.

[imatfaal]

The answer given is N10.65.

...

 

The answer given does not divide evenly with either 90 shares or 6k price rise. Have you checked wording and that it is the matching answer?

 

 

Why would you describe that as a 75k share, just because that happened to be its price at some point in the past? The only relevant information seems to be the price you buy at and the price you sell at.

 

 

What is the answer that is given?

 

How do you buy a 75k share for 70k? Is this purely a math exercise, or is there some accounting/business principle being tested?

 

When I worked for a large company and had a good year I was sometimes allowed to buy shares (at the time held by the company itself) at a fixed price or at a set reduction to the open market price; this could be referred to as buying 156p shares at 146p

[swansont]

 

When I worked for a large company and had a good year I was sometimes allowed to buy shares (at the time held by the company itself) at a fixed price or at a set reduction to the open market price; this could be referred to as buying 156p shares at 146p

 

Right. Which indicates to me that this is not just a math problem dressed up for variety, rather it's a business problem and maybe there is some other concept at play. (unless it's just a poorly worded problem) Or the provided answer is just wrong.