Rate of return on discounted purchase A man bought 20 shares of Rs. 50 each at a discount of Rs. 5 per share. The dividend rate is 4 3/4%. What is his effective rate of interest (yield) on the investment?

Introduction / Context:
This problem asks for the investor’s yield when shares are bought below face value. Dividend is calculated on face value, but the yield reflects income divided by actual cash paid (discounted price), so the yield can exceed the coupon rate.

Given Data / Assumptions:

• Face value per share = Rs. 50.
• Purchase price per share = Rs. 50 − Rs. 5 = Rs. 45.
• Dividend rate = 4 3/4% = 4.75%.
• Number of shares = 20 (cancels in the ratio, so per-share basis suffices).

Concept / Approach:
Dividend per share = 4.75% of Rs. 50. Yield (%) = (Dividend per share / Purchase price per share) * 100.

Step-by-Step Solution:
Dividend per share = 0.0475 * 50 = Rs. 2.375.Yield (%) = (2.375 / 45) * 100 ≈ 5.277...% ≈ 5.28%.

Verification / Alternative check:
If one buys 20 shares: total cost = 20 * 45 = Rs. 900, total dividend = 20 * 2.375 = Rs. 47.50, yield = 47.5/900 * 100 = 5.277...%, same result.

Why Other Options Are Wrong:
4 3/4% is the coupon, not the yield at discount; 4.95% and 3 1/4% do not match the computed ratio; 4.50% ignores the benefit of discount.

Common Pitfalls:
Using dividend% as yield directly, or computing dividend on market price instead of face value. Always compare dividend-on-face to the actual money paid to find yield.

Final Answer:
5.28%