A man acquires Rs. 50 shares paying a 10% dividend. If his investment yields 12.5%, at what price did he purchase them?
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Answer: A. Rs.40
Explanation
A fifty rupee share paying a ten percent dividend generates an annual return of 5 rupees. Desired investment yield is twelve and a half percent on the purchase price. Dividing the annual return by the yield percentage gives a purchase price of 40 rupees. Dividend amount equals share face value multiplied by dividend percentage rate. Investment yield equals annual dividend divided by actual purchase price. Purchase price equals annual dividend divided by desired yield percentage.
Value investors calculate purchase prices to ensure target return thresholds are met. Stock valuation models relate dividend payouts directly to required market returns. Financial literacy includes understanding the difference between face value and market price. Choosing 37.50 rupees results in a higher yield percentage than the specified target. Choosing 48 rupees yields a lower return percentage than required by the investor. Choosing 52 rupees assumes purchase above par value, reducing the effective yield.
- Subject
- Mathematics
- Category
- Mathematics
- Topic
- —
- Difficulty
- medium
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