School Versus Work A. The school you would like to attend costs $100,000. To help finance your...

Question

School Versus Work

A. The school you would like to attend costs $100,000. To help finance your education, you need to choose whether or not to sell your 1,000 shares of Apple stock, 1,000 EE Savings Bonds (with $100 denominations and 4.25% coupon rate) that are five years from their 30-year maturity date, or a combination of both. Provide the appropriate data and calculations that you would perform to make this decision.

B. What are the advantages and disadvantages of selling a combination of stocks and bonds? Be sure to support your answers.

C. Suppose that you choose to sell your stocks, bonds, or a combination of both. What is your choice, and what is your financial reasoning behind this choice? Consider supporting your answer with quantitative data.

D. Suppose that you choose to accept the job. What is your financial reasoning behind this choice? Be sure to support your answer with quantitative data.

II. Bonus Versus Stock

A. The company has offered you a $5,000 bonus, which you may receive today, or 100 shares of the company’s stock, which has a current stock price of $50 per share. Mathematically, what is the best choice? Why?

B. What are the advantages and disadvantages of each option? Be sure to support your answers.

C. What would you ultimately choose to do? What is your financial reasoning behind this choice? Consider supporting your answer with quantitative data.

III. Compliance

A. While investigating the shares offered to you by your potential boss, you discover that the company you are considering working for is not registered as required under the Securities Act of 1933. How does this influence you as a potential employee and as a potential shareholder? Be sure to reference any applicable statutes or laws.

B. You know that accepting this job may eventually lead to a promotion into the role of the financial manager. As the potential financial manager, what federal and shareholder requirements would you need to be familiar with in order to ensure that you are being completely compliant?

David · Accepted Answer

I) 
a) 
The current price of stock = $ 112.76 
No. of shares of Apple stock = 1000 shares 
Market value of Apple stock = $112.76*1000 shares = $112,760 
No. of bonds = 1000  
Denomination = $100, Coupon Rate = 4.25%  
No. of years to maturity = 30 Years -5 years = 25 years 
Let us assume the rate equal to the coupon rate 
When coupon rate is equal to the rate, the price will be same as the face value = $100*1000bonds = 
$100,000. 
Market Price of bonds = $100,000 
Hence, the best option would be to get half the amount by selling the apple stocks and remaining 
half by selling bond.
b)  
Selling a combination of both stocks and bonds will be a risk averse stance. The risk of loosing would 
be minimized.  Holding on to parts of both the stocks and bonds would be beneficial as the 
movement of either cannot be predicted. 
Though the combination prevents from hefty losses it also prevents from heavy gains. If the apple 
stocks go up the student would be profiting with half the total no. of stocks. The risk averse stance 
prevents from making huge gains when the market goes up.
c) 
The best choice is to sell coupon for $121,250 that will cater the school fees which is $100,000 with a 
remaining sum of $ 21,250,

School Versus Work A. The school you would like to attend costs $100,000. To help finance your education, you need to choose whether or not to sell your 1,000 shares of Apple stock, 1,000 EE Savings...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment