The Nominal Value (N.V.) of the share is called the Face Value of the share.

The price of the share in the market is called the Market Value (M.V.). The market price of the share could be more or less than the face value of the share. It all depends on the demand for the share which is the function of how well the company is doing in terms of profitability.

Three possible scenarios could happen:

$\displaystyle \text{Market Value = Face Value (share is said to be AT par)} \Rightarrow \text{M.V.=N.V.}$

$\displaystyle \text{Market Value > Face Value (share is said to be ABOVE par or at a Premium)} \Rightarrow \text{M.V.}>\text{N.V. }$

$\displaystyle \text{Market Value < Face Value (share is said to be UNDER par or at a Discount) } \Rightarrow \text{M.V.}< \text{N.V.}$

The profit that the person gets is the difference between the price that he paid for the share and the price at which he sold the share. Just like (Selling Price – Cost Price). Depending on the types of rules that the country may have, one may have to pay short-term or long-term taxes on his gains in buying and selling shares.

When one invests in shares, the person also earns something that is known as DIVIDEND. The dividend is always calculated at the Nominal Value of the share. Generally, the nominal value of the share is 10 Rs. (in India) but it could be less also depending on if the share was split.

Some formula that you would use in this chapter are:

$\displaystyle \text{Sum Invested = No. of Shares bought } \times \text{M.V. of 1 share}$

$\displaystyle \text{Number of Shares bought = } \frac{\text{Sum Invested}}{\text{M.V. of 1 share}}$

$\displaystyle \text{Number of Shares bought = } \frac{\text{Total Dividend Received}}{\text{Dividend for 1 Share}}$

$\displaystyle \text{Dividend Income = No. of Shares} \times \text{Rate of Dividend} \times \text{F.V.}$

$\displaystyle \text{Profit because of gain in share price = No. of shares } \times (\text{Selling Price - Cost price} ) \text{ of the share }$

$\displaystyle \text{Total Income = Profit + Dividend Income}$

$\displaystyle \text{Return on Investment} =$

$\displaystyle \frac{\text{Dividend + Profit}}{\text{Total Investment}} = \frac{\text{Dividend + Profit}}{\text{Cost Price of the share} \times \text{No of shares bought}}$