Which is better investment 7.5% stock at 105 or 6.5% stock at 94

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Accepted Answer

> [!TLDR]
> The better investment is the one with the higher yield. The 6.5% stock at 94 gives a yield of about 6.91%, while the 7.5% stock at 105 gives about 7.14%. So the **7.5% stock at 105** is the better investment.

When comparing two stocks with different face values, market prices, and dividend rates, you cannot just look at the dividend percentage. A stock’s “7.5%” means it pays 7.5% of its **face value** (usually ₹100) as dividend every year, regardless of what you paid for it. The real question is: **What return do I earn on the money I actually invest?** That return is called the **yield**.

Yield is calculated as:

$$
	ext{Yield} = \frac{	ext{Annual Dividend}}{	ext{Market Price}} 	imes 100
$$

The stock with the higher yield gives you more income per rupee invested. Let’s compute both.

---

1. **Find the annual dividend for each stock.**  
   Both stocks are assumed to have a face value of ₹100 (standard for such problems unless stated otherwise).  
   - For the 7.5% stock: Dividend per share = $7.5\% 	ext{ of } 100 = ₹7.50$  
   - For the 6.5% stock: Dividend per share = $6.5\% 	ext{ of } 100 = ₹6.50$

2. **Compute the yield for the 7.5% stock at ₹105.**  
   You pay ₹105 to get ₹7.50 per year.  
   $$
   	ext{Yield} = \frac{7.50}{105} 	imes 100 = \frac{750}{105} \approx 7.1429\%
   $$

3. **Compute the yield for the 6.5% stock at ₹94.**  
   You pay ₹94 to get ₹6.50 per year.  
   $$
   	ext{Yield} = \frac{6.50}{94} 	imes 100 = \frac{650}{94} \approx 6.9149\%
   $$

4. **Compare the yields.**  
   - 7.5% stock at 105: **≈ 7.14%**  
   - 6.5% stock at 94: **≈ 6.91%**

The 7.5% stock gives a higher return on your investment.

> [!WARNING]
> A common mistake is to compare the dividend rates (7.5% vs 6.5%) directly. That ignores the price you pay. A stock with a lower dividend rate but bought at a deep discount can sometimes yield more. Here, the discount on the 6.5% stock (94 vs 100) is not enough to beat the higher dividend of the other

Q.Which is better investment 7.5% stock at 105 or 6.5% stock at 94

Concept understanding — Stock Valuation

Bond Valuation: The Intuition First

The Precise Statement

Why This Works: The Logic

A Worked Example

The Big Picture

Q.Which is better investment 7.5% stock at 105 or 6.5% stock at 94

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