This analysis is based on the following facts: 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. First, we need to know what 1,000 shares of Wal-Mart stock is currently worth. 1,000 shares of Wal-Mart are currently worth approximately; $74,650. Additionally, we have calculated that the 1,000 Savings bonds (w $100 denominations and 4.25% coupon rate) five years from their 30-year maturity date are worth $107,401.34. Wal-Mart Stock Based on current trends, it does not seem wise to sell
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The current value of the EE Savings Bonds is $ 107,401. At the end of 2015, the Wal-Mart raised the federal fund's rate to 0.25 percent. Whether this is the first of many rate increases in 2016 remains to be seen, because there are so many factors at play on each side of the equation. If the Fed raises rates too quickly or by too much, it could lead to another stall in the economy. However, if the economy continues to expand, small increases in 2016 should be good for the U.S. economy, because it will be an affirmation of growth in jobs and income. While an increase in interest rates may spell good things for the economy in general, it is a mixed blessing for bond holders. This is because there is a converse ratio between bond prices and interest rates, What this means is that if interest rates go up, there is pressure to sell this bond while the value is high.
C. By selling the bonds, I can bear my study expenses and can invest the extra amount in the high return investment. I will lose the amount if sell at the coupon rate and the combination of the selling both in stocks and bonds will provide me some benefit if there may be any return on that stock. A disadvantage to selling both is that I reduce the coupon amount and the dividend amount. I believe selling a combination of both is the best bet. I can keep the predictability of bond payout at maturity and also look for gains in the future with my stock. I feel like this would help even out the risk
The current value of the EE Savings Bonds is $ 107,401. At the end of 2015, the Wal-Mart raised the federal fund's rate to 0.25 percent. Whether this is the first of many rate increases in 2016 remains to be seen, because there are so many factors at play on each side of the equation. If the Fed raises rates too quickly or by too much, it could lead to another stall in the economy. However, if the economy continues to expand, small increases in 2016 should be good for the U.S. economy, because it will be an affirmation of growth in jobs and income. While an increase in interest rates may spell good things for the economy in general, it is a mixed blessing for bond holders. This is because there is a converse ratio between bond prices and interest rates, What this means is that if interest rates go up, there is pressure to sell this bond while the value is high.
C. By selling the bonds, I can bear my study expenses and can invest the extra amount in the high return investment. I will lose the amount if sell at the coupon rate and the combination of the selling both in stocks and bonds will provide me some benefit if there may be any return on that stock. A disadvantage to selling both is that I reduce the coupon amount and the dividend amount. I believe selling a combination of both is the best bet. I can keep the predictability of bond payout at maturity and also look for gains in the future with my stock. I feel like this would help even out the risk