A 9% stock yields 8%. What is its market value__________?
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Answer: D. Rs. 112.50
Explanation
The correct answer is one hundred twelve point five zero rupees for the market value. To yield eight percent from a nine percent stock, the yield formula is used. Dividing nine by eight and multiplying by one hundred gives one hundred twelve point five zero. Stock yield equals the annual dividend divided by the current market price. A nine percent stock provides nine rupees of return on a nominal hundred rupee value. Setting nine divided by market value equal to eight percent yields one hundred twelve point five.
Fixed-income securities trading requires calculating market prices based on target percentage yields. Investment portfolio managers assess bond valuations using similar yield-to-price formulas. Financial markets use dividend yields to determine whether a stock is overvalued or undervalued. Option A represents an incorrect inversion of the dividend and yield percentages. Option B overestimates the market value due to a calculation error in the fraction. Option C underestimates the market price required to achieve an eight percent yield.
- Subject
- Mathematics
- Category
- Mathematics
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- —
- Difficulty
- medium
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