Which investment gives a better
return, assuming the face value of the shares to be Rs. 10?
A. 5%
stock at 75, subject to 30% income tax
Solution:
The following table gives stepbystep calculation of
return on both the investment plans:
Invenstment in
A

Invenstment in
B


Face Value

10

10

Cost of stock

75

90

Return (on face
value)

5% of 10 = 0.5

4% of 10 = 0.4

Tax (on return)

30% of 0.5=
0.15

Nil

Net return

0.35

0.4

%Return on
Investment = (NetReturn/Cost) * 100

(0.35/75) * 100
= 0.47%

(4/90) * 100 = 0.44%

Investment in A gives 0.47% return on investment where
as investment in B gives 0.44%,
hence, investment in A is better
one.
Answer (b)
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