Quantitative Reasoning - Shares & Stocks Questions and Answer with Explanation

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Quantitative Reasoning - Shares & Stocks
 
For you who are taking  XAT on forthcoming January 5, 2014 may find following Quant reasoning questions useful for practice: 
 
The following question will give you clarity about the different terms such as face value, market price, percent dividend, percent interest, yield or rate of return or return on investment (ROI).
 
Question
 
Which amongst the following investments has the lowest return? 
 
a) 7% Rs.100 shares at Rs.120
b) 8% Rs.10 shares at 13.50
c) 9% Rs.50 shares at Rs.54
 
(1) a only
(2) b only
(3) c only
(4) both 'a' and 'c'
 
Answer
 
Option (1). ‘a’ only: 7% Rs.100 shares at Rs.120
 
Explanation
 
 • 7% Rs.100 shares at Rs.120, i.e. the income earned by investing Rs. 120 to buy the share = Rs. 7. Therefore, return = 7/120
 
• 8% Rs.10 shares at Rs.13.50, i.e. the income earned by investing Rs.13.50 on this share is Rs.0.80. Therefore, return = 0.8/13.5 = 8/135
 
• 9% Rs.50 shares at Rs.54, i.e. the income earned by investing Rs.54 on this stock is Rs.4.50. Therefore, return = 4.5/54 = 1/12 = 10/120
 
From the available data we know that 4.5/54 = 1/12 = 10/120 (i.e., returns from the 9% Rs.50 share at Rs.54) is a better investment than 7/120 (i.e., returns from a 7% Rs.100 share at Rs.120).
 
Hence, we need to compare between 7% Rs.100 share at Rs.120 and 8% Rs.10 share at Rs.13.50
 
7/120 = 7*9/120*9 = 63/1080 & 8/135 = 8*8/135*8 = 64/1080
 
64/1080 is a better investment than 63/1080
 
Therefore, the investment with the lowest return is the one given in choice (a).
 
 
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