A man invests in a 16% stock quoted at Rs. 128 per Rs. 100 nominal. What percentage return (yield) does he obtain on his investment?

Introduction / Context:
This problem asks for the effective yield on an investment in shares when the dividend rate and the market price are known. The investor buys a 16% stock at a market price above its face value. Because yield is calculated on the money actually invested (market price), investing at a premium generally reduces the effective return compared to the nominal dividend rate.

Given Data / Assumptions:

• Dividend rate = 16% stock, so dividend on Rs. 100 nominal is Rs. 16 per year.
• Market price = Rs. 128 per Rs. 100 nominal.
• No brokerage or additional expenses are mentioned.
• We must find the percentage yield on the investor's money.

Concept / Approach:
Yield on investment is defined as:
yield % = (annual income from investment / amount invested) * 100 For one Rs. 100 share, annual income is Rs. 16 and the amount invested is the market price Rs. 128. We substitute these numbers into the yield formula to find the effective percentage return.

Step-by-Step Solution:
Step 1: For a Rs. 100 nominal share, annual dividend at 16% = 16% of 100 = Rs. 16. Step 2: Market price per share = Rs. 128. Step 3: Yield on investment for one share = (annual income / amount invested) * 100. Step 4: Substitute values: yield % = (16 / 128) * 100. Step 5: Simplify 16 / 128 = 1 / 8. Step 6: Therefore, yield % = (1 / 8) * 100 = 12.5%.

Verification / Alternative check:
If the investor bought any number of shares, the ratio of total dividend to total investment would be the same because both scale proportionally. For example, buying 10 such shares costs 10 * 128 = Rs. 1,280 and yields 10 * 16 = Rs. 160. Then yield % = (160 / 1280) * 100 = 12.5%, confirming our result.

Why Other Options Are Wrong:
8% and 10% are lower than the true yield and do not match the ratio 16 / 128. A yield of 16% would only occur if the stock were bought at par (Rs. 100), not at a premium. 12% is close but still incorrect because 16 / 128 simplifies exactly to 1 / 8, giving 12.5%. Only 12.5% fits the numerical relationship.

Common Pitfalls:
Learners sometimes confuse the dividend rate with yield and answer 16% directly. Another error is to divide the market price by the dividend, reversing the correct ratio. Always remember that yield is income divided by amount invested, multiplied by 100 to express it as a percentage.

Final Answer:
The investor obtains a yield of 12.5% on his investment.