Corporate Finance Decisions
School Versus Work
The bond coupon rate (4.25%) means that I will receive 4.25% × 100,000 = $4,250 yearly.
In the 5th year, the bonds will reach maturity and I will receive the coupon plus the amount invested. The bond cashflows are thus given as:
1st Year = $ 4,250
2nd Year = $4,250
3rd Year = $4,250
4th Year = $4,250
5th Year= $104,250 (100,000+4,250)Total Cashflows = $121,250The percentage yield will be 21250/100000*100= 21.25%Stocks Cash flows
Apple stocks: Current market price =$ 215.04 (Yahoofinance.com)
market price 1 year ago= $164.00
Dividend payout= $0.73
Total return= ((215.04+0.73*4)-164) *100/164=32.90 %
Advantage of selling a combination of Stocks & bonds:
i. Regular income will remain come from the bonds.
ii. Capital appreciation on the stocks will result in the higher value of the investment.
The disadvantage of selling a combination of Stocks & Bonds:
i. It will be compromising the fixed return on Bonds, and the chances of getting higher returns on capital appreciation are limited.
c) As the computations reveal, the Apple stocks will yield higher than the EE bonds. Although the bonds are secure, by the time they become mature, the Apple stocks will have appreciated more than the bonds, and so I would instead sell the bonds. Additional information is attached in Appendix 1: about the Apple price monthly appreciation.
d) Accepting the job will mean that …
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