Question

School Versus Work A. 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

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Assuming that prevalent yield (YTM) is also 3.25%, the worth of each apple bond would be $1000

And we have 100 bonds.

Value of bond = $100,000

Each share of Apple is around $300.
We have 500 shares.

Value of share =$150,000

School fees is $100,000

He will easily be able to afford his college education.

As the person is attending school, his age is young. He is advised is to have a high portion of equity instead of bonds.

So he must sell 80% of the bond portfolio and fund rest with Equity i.e 20,000/300 = 67 shares of apple.

Sell 80 bonds apple and 67 shares of apple to fund for the school.