Investing in 16% ₹ 100 shares at ₹ 80 or in 20% ₹100 shares at ₹120.

Assertion (A): It is better to invest in 16% ₹ 100 shares at ₹ 80.

Reason (R): Return % from the shares = $\dfrac{\text{Income}}{\text{Investment}} \times 100\%$.

1. A is true, R is false.

2. A is false, R is true.

3. Both A and R are true and R is correct reason for A.

4. Both A and R are true and R is incorrect reason for A.

Both A and R are true and R is correct reason for A.

Reason

Face value of the 1st share = ₹ 100

Dividend rate = 16%

Market value = ₹ 80

Dividend (or income) per share = Dividend rate x face value of each share

= 16% of 100 = $\dfrac{16}{100}$ x 100 = ₹ 16

Rate of return = $\dfrac{\text{Annual income on 1 share}}{\text{Investment on 1 share}}$ x 100

= $\dfrac{16}{80}$ x 100 = 20%

Face value of second share = ₹ 100

Dividend rate = 20%

Market value = ₹ 120

Dividend (or income) per share = Dividend rate x face value of each share

= 20% of 100 = $\dfrac{20}{100}$ x 100 = ₹ 20

Rate of return = $\dfrac{\text{Annual income on 1 share}}{\text{Investment on 1 share}}$ x 100

= $\dfrac{20}{120}$ x 100 = 16.66%

The scheme that offers a higher rate of return is considered better. And, rate of return in first scheme is 20% and that of second scheme is 16.66%.

So, Assertion (A) is true.

Rate of return = $\dfrac{\text{Annual income on 1 share}}{\text{Investment on 1 share}}$ x 100

= $\dfrac{\text{Income}}{\text{Investment}}$ x 100

The given formula for rate of return is true.

So, Reason (R) is true.

Hence, option 3 is correct.