Market value for a target yield from a fixed dividend Mac buys 200 shares of par value $10 each. The company pays an annual dividend of 8%. At what market price per share should he buy if he wants a 10% return on his investment?

Introduction / Context:The investor’s required yield determines the price he should be willing to pay for a given fixed dividend. Yield equals annual dividend per share divided by market price per share. Rearranging gives the target market price for a specified yield.

Given Data / Assumptions:

• Face value per share = $10
• Dividend rate = 8% ⇒ dividend per share = 0.08 * 10 = $0.80
• Target yield = 10% per annum
• Number of shares (200) is irrelevant to the per-share market price calculation.

Concept / Approach:Yield % = (Dividend per share / Market price) * 100. Therefore, Market price = Dividend per share / (Yield%/100).

Step-by-Step Solution:Dividend per share = $0.80Required yield = 10% = 0.10Market price = 0.80 / 0.10 = $8

Verification / Alternative check:At $8, the yield = 0.80 / 8 * 100 = 10%, matching the target.

Why Other Options Are Wrong:$10 implies an 8% yield; $6 would produce 13.33%; $12 would give 6.67%; $7.50 gives 10.67%.

Common Pitfalls:Using face value or market price to compute dividend; dividend is fixed on face value, whereas yield depends on market price.

Final Answer:$ 8