Stocks and Shares – Net yield from quoted price below par What rate of interest (net yield) is obtained from investing in 8.5% stock when the quoted price is 6.5% below par (i.e., price = 93.5)?

Introduction / Context:The “rate of interest” or “yield” on a stock purchase is the dividend relative to the cash price paid. For a quoted price below par, the realized yield exceeds the coupon (dividend) rate.

Given Data / Assumptions:

• Coupon (dividend) rate = 8.5% on face value
• Price = 6.5% below par ⇒ price = 100 − 6.5 = 93.5 (per Rs. 100 nominal)
• Ignore brokerage (none stated).

Concept / Approach:Yield % = (Dividend per 100 nominal / Market price per 100) * 100. Substitute the given values directly.

Step-by-Step Solution:Dividend per 100 nominal = Rs. 8.5Market price per 100 = Rs. 93.5Yield % = (8.5 / 93.5) * 100 ≈ 9.0909% = 9 1/11%

Verification / Alternative check:Note that buying below par must raise yield above 8.5%, which aligns with ≈9.09%.

Why Other Options Are Wrong:8 3/11% is too low; 10 1/9% and 11 1/3% are too high for this discount; 9% is an over-rounding.

Common Pitfalls:Using (100 − price)% arithmetic directly instead of the precise dividend/price ratio.

Final Answer:9 1/11%