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Choosing to keep or sell stock and bonds is never an easy task. There are several variables that come into play before making this decision. However, financing our education is valuable enough to explore our options in exchange for the funding that will require such opportunity. As of February 21, 2019, 500 Apple bonds are valued at $85,975.00 (171.95 x 500). The stock price for Apple shares are valued at $203.86 as of 4/18/2019 (MergentOnline, 2019). As it relates to the Apple bonds, the number of years applicable is 5 (10-5).
Apples, most recent ten-year bonds were traded at $102.775 with a fixed rate of 2.862%% (Marketwatch, 2018). Taking into consideration that the coupon rate is 3.25%, the coupon rate multiplied by the total amount of Apple bonds, 100 would give us a yearly coupon discount of 3.25 (3.25% * 100).
The sale of the Apples bonds would be a total of $95,010.00 (=PV (5,0.0286,5,1000) *100). There are many advantages and disadvantages in selling a combination of stocks and bonds. Advantages include the fact that stock prices rise and fall periodically providing uncertainties while bonds prices can be better determined as they are mostly affected by inflation.
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Selling a combination of stocks and bonds allow investors to diversify their selling options by ensuring that their uncertainties are limited. In addition, while stocks have no guaranteed return, bonds have a higher chance of fostering returns. Thus, selling a combination of these investments will ensure that investors receive gains on both stocks and bonds instead of losing out of on what the latter has to offer. If the investor sells all the bonds attained, they will lose the coupon that is available because of buying the bond.
Hence, it would be better to keep a portion of the bonds to benefit from this. Disadvantages include the fact that stocks typically have higher returns compared to stock and the investor may lose out on these returns by offering the stock for sale. In addition, bonds tend to fluctuate less than stocks and offering them for sale not only forces the investor to lose their coupon but also the stability and liquidity that bonds offer.
Apple is a technology company that specializes in the sale of many electronic devices and innovative ideas. According to Apple's 2018 10-K which is attached below, the company's earnings per share has increased significantly over a five (5) year period; ranging from 6.49 in 2014 to 12.01 in 2018 (Apple Inc, 2018). This indicates that Apple's common stock shareholders were able to receive an increase in their dividends in the long run. This is also a great sign that any investment in the company will be valuable. According to Gurufocus (2018), Apple's financial strength is six (6) and its debt to revenue ratio for its last quarter was 1.82 indicating that an investment in the company's stock has high volatility and is therefore very risky as it does not have a good balance between its debts and income. Apple's stock prices have also decreased significantly within the past few months as they were unable to me their projected net sales, thus affecting the stock market significantly. However, Apple's ideas and innovations has led the industry to believe that its new/upcoming inventions, revenue growth, and net income will drastically increase in the long run.
For example, it is said that Apple aims to sell its Apple watch through Medicare plans to seniors and this may well be its breakthrough. The innovative idea of the apple watch limits the need for customers to use their phones. Hence, by targeting a sub group that invested little into the device will force them to invest more. These are the many reasons why I have decided to sell a combination of stocks and bonds as this would be able to benefit from the advantages of each investment type. By paying close attention to the company's finances, I have decided to sell a combination of stocks and bonds to benefit from the advantages that each had to offer while for the investments to mature or increase in return. Hence, selling a portion of the stocks and bonds with the aim of benefiting from the stability of remaining bonds while anticipating a return on outstanding stocks and collecting a difference from such. Bonds also provide a level of income stability and by investing in them, the investor is more likely a steady income at maturity. While stock prices have a higher return in comparison to bonds, keeping of portion of stocks ensure that the stockholder benefits from the return. By selling half of the savings bonds will give me $47,505.00 while leaving the additional $47,505.00 to mature and gain additional interest. The remaining amount will be taken from the sale of Apple stocks.
This would allow me to keep majority of my stocks active and hopefully increasing value over time. The decision to accept the job instead of using the resources available to further my education would be based on keeping the entirety of stocks and bonds owed while working to provide other finances for college. Keeping the Apple bonds until maturity in the next 5 years would ensure that the payment received for the bond would benefit from all interest and coupon as well as to ensure that returns, though not guaranteed are maximized and the dividends are collected. This could be based on the ability to collect additional funds so that the amount of stock or bonds combination that needs to be sold is less than what would previously calculated; leaving more investments in the market for future gains.The decision of whether to receive $5000 today or 100 shares of the company's stocks that are currently priced at $50 per share is one that can be easily determined.
The best choice would be to receive the $5000 rather than the 100 shares of stock. Stock returns are unpredictable and therefore, there is no guaranteed that a dividend will be earned on the 100 shares of $50 stocks. However, if the $5000 is used to invest in a less volatile investment such as a savings account that yields a favorable rate of return or invested into the bonds market, the investor would be able guarantee a return on their investment. The disadvantage of not choosing the stocks would be losing the ability to gain the highest return possible on the amount given. In addition, since bonuses are considered supplemental income by the internal revenue services (IRS), they are taxed higher than regular income at a flat 20% and would therefore only be $4000 in cash.
However, investing $4000 into a saving accounts or other investments would yield return in the long run.Ultimately, I would choose the cash option so that I can determine what stocks, bonds, or a combination of investment products I would like to invest in. If the company's stock is not profitable, then the risk of not receiving a return would be relatively. However, if they company's stocks have seen tremendous growth, them it would be better to invest in the stock option. However, the uncertainty and the volatility of stocks are the reasons as to why it would be better to receive the cash and invest in diversified investment products.
By choosing the cash option, the investor will be able to invest in stocks that are more profitable, stocks that best please their needs, as well as ones that have a higher return both now and in the future.If it was understood that the company had taken the liberty of offering stocks for sale but have not registered with the Securities and Exchange Commission (SEC), this could affect all the companies stake holders. It is a felony to offer or sell stocks that are not registered with SEC and therefore, the entire company would be jeopardized if or when they are investigated by SEC for their illegal activities. This would result in several employees being unemployed as well as several investors being taken advantaged of in the instance where the company goes bankrupted. Since unregistered shares have fewer investor protection and higher risks than registered shares, investors will not necessarily be able to retain their money from these companies and would face tremendous loss as a result of their wrongdoings.As a financial a manger, it is vital to pay close attention to current federal and shareholder safeguards to ensure that you a being compliant.
The Sarbanes Oxley Act (SOX) of 2002 aims to protect investors by improving the accuracy and reliability of corporate disclosures made pursuant to the securities law, and for other purposes (Titman, Keown, & Martin, 2014). SOX also place responsibility of accuracy and integrity of financial report on senior executives which limits the number of executives who are willing to risk their career and lifestyle to fraud. SOX is an appropriate safeguard because it encourages whistleblowers to report any errors in accounting audits but also providing them with job protection. It is also an appropriate safeguard because it is enforced by the Securities and Exchange Commission (SEC).
SEC especially enforces section 404 which requires executives to certify the accuracy of their financial statements. If there are any noticed violations, CEOs could face up to 20 years in jail. Even though the Securities Act of 1933 held corporations and its investment banks legally responsible for accurately reporting their financial information as it relates to publicly-traded stocks, CEOs and other executives were not liable which made it difficult to prosecute them. Hence, SOX aimed to provide a solution to this problem. With the implementation of SOX corporations were prohibited from maintaining a consulting relationship with their auditing companies and the consequences of cooking the books were now less rewarding than accurately and ethically reporting their income, revenues and, expenses. In addition, the Securities Act is an appropriate safeguard because it is less costly and time consuming than SOX, but it holds companies and their banks liable for wrongful submitted information. With the implementation and enforcement of both Acts, anyone who condones or encourages fraudulent account reporting would be legally liable for their actions.
Analysis of Apple Inc Stocks. (2019, Aug 20). Retrieved from https://studymoose.com/analysis-of-apple-inc-stocks-essay
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