One investment moves through primary and secondary markets
Series XII practice case · 4 questions · 1 mark each
Question 1 of 4Case practice
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Tara buys 100 newly issued shares directly in a company’s public issue at ₹200 per share. Assume all of her subscription is received by the company and there are no expenses. Later she sells 40 of those shares on the exchange to another investor at ₹230 per share. She keeps the other 60 shares, and the market price remains ₹230 at the observation date. Ignore dividends, fees, taxes and any other transactions. For this case, realised gain is sale proceeds less the original purchase cost of the shares sold. Unrealised gain is the price increase on shares still held.
All prices are hypothetical.
Gain is measured before charges and taxes.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
Tara buys 100 newly issued shares directly in a company’s public issue at ₹200 per share. Assume all of her subscription is received by the company and there are no expenses. Later she sells 40 of those shares on the exchange to another investor at ₹230 per share. She keeps the other 60 shares, and the market price remains ₹230 at the observation date. Ignore dividends, fees, taxes and any other transactions. For this case, realised gain is sale proceeds less the original purchase cost of the shares sold. Unrealised gain is the price increase on shares still held.
All prices are hypothetical.
Gain is measured before charges and taxes.
Q1How much does the company receive from Tara’s original subscription?
Option A. ₹23,000
Why it is wrong: This values the original shares at the later market price.
Option B. ₹9,200
Why it is wrong: This is the later secondary-market sale proceeds.
Option C. ₹12,000
Why it is wrong: This is the cost of the 60 shares Tara continues to hold.
Option D. ₹20,000 — Correct answer
Answer: D. The company receives 100 × ₹200 = ₹20,000 from the primary-market subscription. Remember: A new share issue channels subscription money to the issuer.
Hint, shown before you answer in practice mode: Use the number of newly issued shares and the issue price.
XII-P-C01-Q1easynumerical
Q2Who receives the ₹9,200 paid by the buyer of Tara’s 40 shares?
Option A. All shareholders in proportion to their holdings
Why it is wrong: A secondary sale pays its seller, not every shareholder.
Option B. The company’s lenders
Why it is wrong: No debt repayment arrangement is part of the transaction.
Option C. Tara, as the selling investor — Correct answer
Option D. The issuing company as fresh capital
Why it is wrong: The later trade transfers existing shares and is not a new issue.
Answer: C. The new investor pays 40 × ₹230 = ₹9,200 to Tara through the trading and settlement process. The company does not receive fresh subscription capital from this trade. Remember: A secondary-market transaction transfers existing securities between investors.
Hint, shown before you answer in practice mode: Identify the owner selling the existing shares.
XII-P-C01-Q2mediumapplication
Q3What is Tara’s realised gain on the 40 shares sold?
Option A. ₹1,200 — Correct answer
Option B. ₹9,200
Why it is wrong: This is gross sale proceeds, not gain.
Option C. ₹3,000
Why it is wrong: This includes the unrealised gain on the 60 shares still held.
Option D. ₹1,800
Why it is wrong: This is the gain on the shares still held.
Answer: A. Realised gain = 40 × (₹230 − ₹200) = ₹1,200. Only the sold quantity enters this calculation. Remember: Realised gain is linked to the securities actually sold.
Hint, shown before you answer in practice mode: Subtract the cost of the sold shares from their proceeds.
XII-P-C01-Q3mediumnumerical
Q4What is the unrealised gain on the 60 shares still held?
Option A. ₹1,200
Why it is wrong: This is the realised gain on the sold shares.
Option B. Zero
Why it is wrong: An unrealised price gain can exist before the shares are sold.
Option C. ₹13,800
Why it is wrong: This is their full market value, not their gain.
Option D. ₹1,800 — Correct answer
Answer: D. Unrealised gain = 60 × (₹230 − ₹200) = ₹1,800. It may change with future prices before Tara sells. Remember: A gain can be unrealised and remain exposed to market movements.
Hint, shown before you answer in practice mode: Apply the ₹30 price increase to the remaining shares.
XII-P-C01-Q4mediumnumerical
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