Yield with premium purchase What effective annual yield is obtained from a 9 1/2% stock when the quoted price is 14% above par (i.e., price = 114)?

Introduction / Context:
Buying at a premium reduces yield relative to the coupon rate because the investor pays more than face value but still receives the same dividend on nominal. This exercise reinforces yield computation from price and dividend data.

Given Data / Assumptions:

• Dividend rate = 9.5% on nominal Rs. 100.
• Quoted price = 114 (14% above par).
• No brokerage or tax considered.

Concept / Approach:
Yield (%) = (Dividend per 100 / Market price per 100) * 100. Here dividend per 100 = 9.5 and market price per 100 = 114, so compute 9.5/114 * 100.

Step-by-Step Solution:
Dividend per 100 = Rs. 9.5.Cost per 100 = Rs. 114.Yield = (9.5 / 114) * 100 ≈ 8.333...% = 8 1/3%.

Verification / Alternative check:
Since price is above par, the yield must be below 9.5%. A neat fraction 8 1/3% (i.e., 25/3%) is consistent with 9.5/114 exactly equaling 19/2 divided by 114 = 19/228 = 0.083333....

Why Other Options Are Wrong:
8 2/3% or 9 1/3% do not match the precise ratio; “Data inadequate” is incorrect because dividend and price are sufficient.

Common Pitfalls:
Applying the percentage to the wrong base (price instead of nominal or vice versa). Dividend is always on nominal; yield compares that dividend to the actual price paid.

Final Answer:
8 1/3%