Question

I posted this about a week ago and still have not received an answer. Can someone please help me with this? Thank you!

The school you would like to attend costs $100,000. To help finance your education, you need to choose whether or not to sell any of your 500 shares of Apple stock you bought five years ago, 100 Apple bonds (each with a $1,000 face value and a 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 would perform to make this decision

Answer 1

Current price of Apple stock = $ 235 (Source: Nasdaq price)

Market price of the Apple bonds = 105 = 105% x Face Value = 105% x 1,000 = $ 1,050 (Source: https://markets.businessinsider.com/bonds/apple_incdl-notes_201717-27-bond-2027-us037833cx61)

• Apple stock has given a return better than bonds in the past.
• Apple bonds are fixed income securities where there is no upside.
• There is tremendous upside potential in Apple stock.
• However the risk is also higher in equity markets

I will therefore

• sell half of my holding in the bonds thus getting = Price x number = 1,050 x 50 = $ 52,500
• And meet the shortfall amount = 100,000 - 52,500 = $ 47,500 by selling 47,500 / 235 = 202.13 = 203 shares of the Apple

By doing so

• I will get the desired money to fund my education
• I will be left with a well balanced portfolio comprising of low risk low return bonds as well high risk high return stocks of Apple. My portfolio will thus be a reasonably well balanced portfolio.