Which is better investment, 12% stock at par with an income tax at the rate of 5 paise per rupee or 142/7\% stock at 120 free from income tax ?

Answer: Option B

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.