Question

A company declares a dividend of 8% on ₹ 100 shares. Atul buys such shares and gets 10% on his investment. At what price does he buy each share?

Answer 1

Given:

Dividend declared = 8% on ₹ 100 shares.

Atul’s required return (yield) = 10% on his investment.

Step-wise calculation:

1. Dividend (cash) received per share

= 8% of ₹ 100

= ₹ 8

2. Let market price paid per share = x.

Yield = `"Dividend per share"/x xx 100%`

= 10% 

⇒ `8/x xx 100 = 10` 

⇒ `8/x = 0.10` 

⇒ `x = 8/0.10`

⇒ x = ₹ 80

Atul buys each share at ₹ 80.