School vs. Work

Anonymous
timer Asked: Dec 23rd, 2018
account_balance_wallet $15

Question description



I. 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 500 shares of Apple stock or 100 Apple Bonds (with $1000 denominations and 3.25% coupon rate) that are five years from their 10-year maturity date, or a combination of both. Provide the appropriate data and calculations that you 1would perform to make this decision.

Instructor Help

You need to figure out how to finance your education. You will need to look up the current market value of Apple Stock you own 500 shares of the stock. Do you want to sell this investment or a part of the investment to help pay for your $100,000 school bill? Why or why not?

In addition, you own 100 Apple Bonds (with $1000 denominations and 3.25% coupon rate) that are five years from their 10-year maturity date (you have 5 years to maturity). In this case the bonds are 1000 dominated (1000 × 100) and matures in 5 years. The coupon will be 3.25, meaning that they pay 0.0325 × 100,000= 3,250 for each year but in year 5, you will receive 103,250 (100,000 + 3,250 when the bond matures). Most bonds pay coupons and in the final year pay the principal.

Bond cashflow

Year 1 = $ 3,250

Year 2 = $3,250

Year 3 = $3,250

Year 4 = $3,250

Year 5 = $103,250 (100,000+3,250)

Total Cash = $116,250 (will be in 5 years)

To make it easier for most who are new to bonds, we shall assume that the bond is selling at par (meaning it will be sold for $100,000). Means you will forgo the coupons payments (3,250) for the next 5 years if you sell now. Explain more on this concepts but the above analysis should help you look at cash-flows. However the stock price of Apple can increase giving you better returns.

Bonus vs stock

Your company offers you cash bonus or stocks. Get stock and the stock price could go down in value or appreciate for capital gains. Get immediate cash/bonus but you pay taxes – lowing your pay. investigate the terms capital gains and postponing tax liability using stock

Compliance

On compliance, please research whether a company is in violation when not registered with the SEC but offers stocks to the employee. Many private companies offer stocks to employees - (they are not public companies). Private companies can give stock to employees but must meet certain requirements....investigate.

Tutor Answer

TutorLarra
School: Duke University

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Review

Anonymous
Good stuff. Would use again.

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