A 6 percent stock yields 8 percent. Find the market price of the stock.

Given data

• Coupon rate = 6 percent on Rs 100 face ⇒ dividend Rs 6
• Investor yield required = 8 percent

Concept / Approach

• Yield = Dividend / Market Price.
• Solve 8 percent = 6 / Price.

Step-by-step calculation

6 / Price = 0.08 ⇒ Price = 6 / 0.08 = Rs 75

Verification

At Rs 75, dividend 6 gives 6/75 = 0.08 = 8 percent.

Common pitfalls

• Reversing the ratio as Price / Dividend.
• Applying the 8 percent to face value instead of market value.

Final Answer

Rs 75