Question:
Which investment gives a better return, assuming the face value of shares to be Rs. 10?
A. 5% stock at 75, subject to 30% income tax
B. 4% stock at 90, tax free
Which investment gives a better return, assuming the face value of shares to be Rs. 10?
A. 5% stock at 75, subject to 30% income tax
B. 4% stock at 90, tax free
A. 5% stock at 75, subject to 30% income tax
B. 4% stock at 90, tax free
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Work out each stock's after tax yield as (net income divided by market price) times 100, then compare.
Updated On: Jul 14, 2026
- B
- A
- Both A and B
- None of these
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The Correct Option is B
Solution and Explanation
Step 1: Yield formula. Yield = Net annual income / Market price x 100
Step 2: Stock A on Rs.100 face value. Gross dividend=5, Tax=1.5, Net=3.5. Yield = 3.5/75 x 100 = 4.67%
Step 3: Stock B. Dividend=4, tax free. Yield = 4/90 x 100 = 4.44%
Step 4: Compare. 4.67% > 4.44%, so A is better.
Final Answer: Investment A gives the better return.
Step 2: Stock A on Rs.100 face value. Gross dividend=5, Tax=1.5, Net=3.5. Yield = 3.5/75 x 100 = 4.67%
Step 3: Stock B. Dividend=4, tax free. Yield = 4/90 x 100 = 4.44%
Step 4: Compare. 4.67% > 4.44%, so A is better.
Final Answer: Investment A gives the better return.
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