Price for target yield on a fixed-dividend stock I want to purchase a 6% stock that must yield 5% on my capital. At what price (per Rs. 100 nominal) should I buy the stock?

Introduction / Context:For a desired yield different from the coupon rate, the only adjustable variable is purchase price. Given the dividend per Rs. 100 nominal, set price so that dividend/price equals the target yield.

Given Data / Assumptions:

• Dividend rate = 6% ⇒ Dividend per Rs. 100 nominal = Rs. 6.
• Required yield = 5% per annum.
• No brokerage or taxes.

Concept / Approach:Yield = (Dividend / Price) * 100 ⇒ Price = Dividend * 100 / Yield%. Substitute Dividend = 6 and Yield% = 5 to obtain the price per Rs. 100 nominal.

Step-by-Step Solution:Price = 6 / 5 * 100 = 1.2 * 100 = Rs. 120.

Verification / Alternative check:Check yield at price 120: 6/120 * 100 = 5%, exactly as required. Because the coupon (6%) is above desired yield (5%), the price must be above par (premium), which matches Rs. 120.

Why Other Options Are Wrong:Rs. 111 or Rs. 101 would give yields greater than 5%; Rs. 83.33 would give a much higher yield; Rs. 115 still above 5%.

Common Pitfalls:Using the invested amount instead of the per-100 framework, or forgetting to convert percent properly. The formula keeps it straightforward.

Final Answer:Rs. 120