Which is better investment, 12% stock at par with an income tax at the rate of 5 paise per rupee or $$14\frac{2}{7}\% $$  stock at 120 free from income tax ?

A. 12% stock

B. $$14\frac{2}{7}\ $$% stock

C. Both are equally good

D. Cannot be compound

Answer: Option B

Solution(By Examveda Team)

Let investment in each case = Rs. (100 × 120)
Income from 12% stock
= $$ {\frac{{12}}{{100}} \times 100 \times 120} $$    = Rs. 1440
Net income
= Rs. $$\left( {1440 - \frac{5}{{100}} \times 1440} \right)$$     = Rs. 1368
Income from $$14\frac{2}{7}\ $$% stock
= Rs. $$\left( {\frac{{100}}{{7 \times 20}} \times 100 \times 120} \right)$$     = Rs. 1428.57
Clearly, $$14\frac{2}{7}\ $$% stock is better.