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Which is better investment, 4% stock at per with an income tax at the rate of 5 paise per rupee or 41/2% stock at 110 free from income tax ?
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- 4% at par with income tax
- 91/2 at 110
- 5%
- 25%
Correct Option: B
Let investment in each case be Rs. (100 x 110)
Gross income from 4% stock = Rs. (4/100) x (100 x 110) = Rs. 440
Net income from the stock = Rs. (440 - 22) = Rs. 418
Net income from 41/2% stock = Rs. (9 x 100 x 110) / (2 x 110) = Rs. 450
∴ Better stock is 41/2% at 110.
