Discussion
What is the annual income from Rs. 4500 invested in 8% stock at 90 ?
Answer: C
Correct answer: Rs. 400
\[\text{Face value bought} = \frac{4500}{90} \times 100 = \text{Rs. } 5000\]
\[\text{Income} = \frac{8}{100} \times 5000 = \text{Rs. } 400\]
Buying below par is what makes the effective yield, \(\tfrac{400}{4500}\), higher than the 8% nominal rate.
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