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Kelly NelsonApril 25, 2017FIN 320Final Project Part III
If I choose to attend school I will need $100,000.00. I have 1,000 shares of Apple stock and 1,000 EE Savings Bonds with $100 denominations and 4.25% coupon rate that are five yearsfrom their 30-year maturity date. To pay for school I need to decide whether to sell my stocks, bonds, or a combination of both. As of April 25, 2017, the Apple stock price is $143.64, selling all of the stock would leave me with $143,640.00 (Apple Inc, 2017). With a coupon rate of 4.25% I make $4,250.00 each year (0.0425 x 100,000), and in five years, the last year of the bond, I will receive $104,250.00 since bonds pay coupons each year and in the final year they pay the principal. If I sell the bonds now I will have to forgo the coupon payments of $4,250.00 for the next five years.The advantages of selling a combination of stocks is bonds is that I am able to keep a diversified portfolio and there is less risk. By diversifying your investments by having both stocks and bonds you ensure some safety while leaving some opportunity for above-average returns in your stock investments. Disadvantages of selling a combination of stocks and bonds are the high transaction costs that can be incurred by selling both. Also, stocks carry a risk of devaluation at any time so keeping them can be risky. Bonds on the other hand have less risk, but there is always the slight risk of default (Combination of Stocks and Bonds is the Best, 2010).My choice would be to sell a combination of both stocks and bonds. I would take half the amount by selling bonds and half by selling stock. Apple’s stock price is up right now so I would only need to sell 349 shares to get $50,000 leaving me with 651 shares in the company. By taking $50,000 from the bonds rather than selling completely I will not have to forgo the yearly coupon payment that is paid to me. Selling a combination of both will still leave me with a diversified portfolio and risk will be hedged.
If I were to accept the job my financial reasoning behind the decision would be that I willnot have to pay $100,000.00 for school and will be able to leave my stocks and bonds the way