Question

Lotta B. Buchs married shortly after her 40th birthday to handsome and rich gentleman named Jon Simphal, a man of age 20 years her senior. They lived when a sudden and unexpected shark attack ended Mr. Simphal's life. Fortunately, Mr. Simphal expected h around to take care of Lotta in her golden years, so years ago he purchased her through her elder years. She received these investments shortly after his death-just in time since their fortunes were basically gone by that time lavishly for the next 10 years, mainly on invested savings from both of their earlier investments $2 million in bonds and stocks to financially help otta remarried shortly after Mr. Simphal passed away. Her new husband, Harry Hadital, was most interested in Lotta's investment portfolio. He quickly noticed the following interesting bonds in her portfolio 1. Lotta owned $500,000 in bonds with a 5% interest rate. Of these bonds, $350,000 of them had a call provision of January 31 2019. Mr. Hadital told Lotta that the bonds no longer would pay interest since the call date had passed and that he would do r and redeem them if she endorsed the bonds over to him. Lotta had not received anything from the company stating the callable bonds were redeemed. However, she was feeling poorly that day and considered his offer to be a good faith offer. She quietly thanked her astrologer, Canna C. Things, for sending Mr. Hadital to her 2. Recently, Lotta received a letter from Angus Are Us, a cattle futures company in which she owns 500 shares of stock at $28 per share. The letter informed her that there will be a stock split on March 14, 2019 of 2 for 1. She is elated, since she and Mr. Hadital are planning an expensive 30 day ocean cruise to Iceland on March 31 and they need the money. Upon strong encouragement from Mr. Hadital, she plans on selling 375 shares of this stock to pay for the cruise, which costs $10,000. She ill sell the shares on March 20, 2019. After Lotta endorsed the stock certificates over to her husband, he stated he would take care of the sales by calling his broker, Ima Krook, who will fix everything up neat and tidy After Mr. Hadital leaves for the broker's office, Lotta begins to wonder whether she did the right thing. She calls you, a soon to be graduate of a prestigious university, to look things over for her

Help Lotta make the proper decisions in the above dilemma facing her. Recommendations with proper financial analysis and calculations. What's your conclusion.

Answer 1

1) For bonds whose call date has passed, it will not mean that they would not pay interest. The option to recall the bond by the issuer has passed, hence the issuer cannot recall the bonds. Hence the bonds shall still pay interest. Lotta shall be better off by not endorsing over the bond to her new husband.

2) Lotta should not have endorsed the stocks to her husband. However lets see if the stocks are enough to pay for the cruise.

Initial price = $28

The stocks had 2 for 1 split, hence it means 2 new stocks for each 1 old stock.

New price of the stock = $28/2 = $14

Now since she plans to sell 375 shares,

Outflow = $14*375 = $5,250 which shall not be able to pay for cruise in totality.