Q.An investor is choosing between two securities:

The better investment is the one with the higher yield — the higher return per rupee invested — which need not be the one with the higher headline rate.

The correct basis for comparison is yield, not the stated rate, because yield measures the income earned per rupee actually invested (§6).

Security (a): 8% stock at 80. For ₹100 nominal, income = ₹8, cost = ₹80.

Security (b): 10% stock at 125. For ₹100 nominal, income = ₹10, cost = ₹125.

$\text{Yield}_b = \dfrac{10}{125}\times100 = 8\%$ …

Cross-check on equal ₹10,000 investments. In (a), ₹10,000 buys $\tfrac{10000}{80}\times100 = ₹12{,}500$ nominal, earning $8\%\times12500 = ₹1{,}000$. In (b), ₹10,000 buys $\tfrac{10000}{125}\times100 = ₹8{,}000$ nominal, earning $10% …

The classic mistake is picking the security with the higher stated rate (here the 10% stock) without computing yield. Because the 10% stock is bought at a steep prem …