This lesson is about how people invest money in companies by buying shares. The questions are usually story problems, so it's important to understand the vocabulary and the steps for calculation.

1. Key Vocabulary

• Share: A small unit of ownership in a Public Limited Company.

• Market Price: The current price of one share on the Colombo Stock Exchange (CSE). This price goes up and down.

• Amount Invested: The total money you pay to buy shares.

• Dividend: A portion of the company's profit paid to shareholders. It is usually given as a fixed amount per share (e.g., "Rs. 4 per share").

• Dividend Income: The total money you receive from the company as dividends for a year.

• Capital Gain / Loss: The profit or loss you make when you sell your shares.

2. Core Formulas & Calculations

These are the essential calculations you must know.

Buying Shares & Earning Dividends

1. Amount Invested = Number of Shares × Market Price per Share

2. Number of Shares Bought = Total Amount Invested / Market Price per Share

3. Annual Dividend Income = Number of Shares × Dividend per Share

4. Dividend Income as a Percentage of Investment (A common exam question!) = (Annual Dividend Income / Amount Invested) × 100%

Selling Shares & Capital Gains

When you sell shares, you make a profit or loss based on the change in market price.

5. Capital Gain (or Loss) per Share = Selling Price per Share - Purchase Price per Share

6. Total Capital Gain (or Loss) = Capital Gain per Share × Number of Shares

7. Total Profit from an Investment = Annual Dividend Income + Total Capital Gain

How to Solve a Typical Exam Problem

Most complex questions involve buying shares, holding them for a year to get dividends, and then selling them. Break the problem down into three parts:

Part 1: The Purchase

• How much was invested? (Amount = Shares × Price)

• How many shares were bought? (Shares = Amount / Price)

Part 2: The Income

• What was the annual dividend income? (Income = Shares × Dividend)

Part 3: The Sale

• How much money was received from selling? (Selling Amount = Shares × New Price)

• What was the capital gain? (Capital Gain = Selling Amount - Amount Invested)

• What was the total profit? (Total Profit = Dividend Income + Capital Gain)

Exam Tips & Common Mistakes

• Mistake 1: Confusing Dividends and Capital Gains. Dividends are paid by the company for owning shares. Capital gain is the profit from selling shares. Read the question carefully to see which one (or both) you need to calculate.

• Mistake 2: Using the Wrong Market Price. Always check if the price is for buying or selling. A question might state: "He bought shares at Rs. 40 and sold them a year later when the market price was Rs. 50". Use Rs. 40 for the purchase calculation and Rs. 50 for the sale calculation.

• Exam Tip 1: Keep Track of Companies. If a problem involves two companies (A and B), draw two columns in your rough work area. Write down the number of shares, market price, and dividend for each company separately to avoid mixing up the numbers.

• Exam Tip 2: Percentage of Investment. When asked to calculate the "income as a percentage of the investment", always use the dividend income and the initial amount invested. The formula is: (Dividend Income / Amount Invested) × 100%.

• Exam Tip 3: Total Profit. Remember that the total profit is not just the capital gain. It's the sum of all the money you made: Total Profit = Dividends Received + Capital Gain from Sale.