Stocks and Shares – Net yield when buying at a small premium What net rate of interest (yield) is obtained from investing in 12.75% stock when the price is at a 2% premium (i.e., price = 102)?

Introduction / Context:
Yield (effective rate) equals dividend per Rs. 100 face divided by the cash price per Rs. 100, expressed as a percentage. Buying at a premium lowers the yield below the coupon rate; buying at a discount raises it.

Given Data / Assumptions:

• Coupon rate = 12.75% (i.e., Rs. 12.75 per Rs. 100 nominal per year)
• Market price = 102 (Rs. 102 per Rs. 100 nominal)
• No brokerage mentioned; ignore it.

Concept / Approach:
Yield % = (Dividend per 100 / Market price per 100) * 100.

Step-by-Step Solution:
Dividend per 100 = Rs. 12.75Price per 100 = Rs. 102Yield % = (12.75 / 102) * 100 = 12.5%

Verification / Alternative check:
Because the purchase is at a 2% premium over par, the yield should be slightly less than 12.75%, which 12.5% confirms.

Why Other Options Are Wrong:
12.0% and 11.75% are too low; 13% is too high; 12 1/2% states the same value but we standardize to 12.5%.

Common Pitfalls:
Using 100 ± 2 as the dividend rather than as the price; dividend remains fixed on nominal.

Final Answer:
12.5%