Question

You have some retirement savings you need to invest. You can choose to invest in AT&T (T) stock at the current price $38.55 per share or Apple (AAPL) stock at the current price of $222.89 per share. You have $10,000 to invest and assume there are no transaction costs. You plan on retiring in 20 years. Which do you invest in? Justify your choice with good financial calculations and solid reasoning and research.

my instructor said we do not need a intrest rate to solve this problem.

Answer 1

Your instructor said right that you don't need an interest rate for this problem, you don't need the investment amount either

The good thing about this problem is that there is no wrong answer, I will give you my inputs which can obviously change if you feel something else.

The objective is to generate the highest possible return on the $10,000 in 20years time frame, by either investing it in AT&T or Apple stock, so the focus should be on growth, which of the 2 stocks can deliver higher growth at a minimum cost.

It means you have to select the company which you believe can grow more and at the same time you are paying less for it presently. To compare this you can use the PEG ratio, it is the PE ratio divided by the growth rate of earnings for a specific time period, the lower the ratio value the better is the stock in terms of cost for growth. The PE gives you how much times are you paying for the current yield on the investment and the growth rate of earnings tells you how much future potential for growth exist in it, PE ratio is also readily available on the NASDAQ website

AT&T Forecast 12 Month Forward PEG Ratio	2.39

APPLE Forecast 12 Month Forward PEG Ratio	1.79

Sources: nasdaq.com/market-activity/stocks/t/price-earnings-peg-ratios & https://www.nasdaq.com/market-activity/stocks/aapl/price-earnings-peg-ratios

So I would prefer to invest in APPLE over AT&T.

The growth in PEG ratio depends on a variety of factors such as industry growth, stability and consistency of growth, possible future issues in the industry/business, the scope of market expansion, etc. Taking everything into consideration is a very long process and requires expertise gathered over years of experience, I have put my faith in the consense report provided on the NASDAQ website to decide my investment