Income from fixed-interest stock: Find the annual income from 7 1/2% stock on a nominal (par) holding of $20,000 if the stock was purchased at $120. Assume the quoted price does not alter the coupon income.

Introduction / Context: Fixed-interest (coupon) stock pays a stated percentage of the nominal (par) amount annually, regardless of the market price paid to acquire it. The question focuses on calculating annual coupon income, not yield.

Given Data / Assumptions:

• Coupon rate = 7 1/2% = 7.5% per annum.
• Par (nominal) holding = $20,000.
• Purchase price = $120 per $100 nominal (affects yield, not coupon income).

Concept / Approach: Annual income = coupon rate * nominal amount. The purchase price is irrelevant to the coupon dollars received each year; it only matters for yield computation, which is not asked.

Step-by-Step Solution:

Verification / Alternative check: 10% of $20,000 is $2,000; 7.5% is three-quarters of that, i.e., $1,500.

Why Other Options Are Wrong: $1,450, $1,550, and $1,600 are near-miss distractors; $1,400 is too low. None matches the exact 7.5% of $20,000.

Common Pitfalls: Incorrectly applying the market price to compute the coupon income; mixing up coupon with yield.

Final Answer: $ 1500