Market value from yield relation: A 4% stock is providing a 5% yield to an investor. What is the market value (price per ₹100 nominal)?

Introduction / Context:The stock's coupon rate is paid on nominal value, but yield compares that dividend to the price paid. If a 4% stock yields 5%, the investor must be buying below par. The price can be computed directly by proportion.

Given Data / Assumptions:

• Coupon rate = 4% ⇒ ₹4 dividend per ₹100 nominal.
• Observed yield = 5% on the actual price.

Concept / Approach:Yield % = (Dividend / Price) * 100. Rearranged: Price = (Dividend * 100) / Yield% = (4 * 100) / 5 = ₹80.

Step-by-Step Solution:Dividend per ₹100 = ₹4.Yield% = 5 ⇒ Price = 4 * 100 / 5 = ₹80.

Verification / Alternative check:At ₹80 price, income ₹4 gives 4/80 * 100 = 5% yield, which matches the given yield.

Why Other Options Are Wrong:

• ₹125 implies a yield below 4% for a 4% coupon, which contradicts 5% yield.
• ₹99 and ₹109 do not give the exact 5% yield.

Common Pitfalls:

• Mistaking coupon for yield; yield depends on market price, not just coupon.

Final Answer:Rs. 80