Question

A company has offered you a $5,000 bonus, which you may receive today, or 100 shares of the company’s stock, which has a current stock
price of $50 per share. Mathematically, what is the best choice? Why?
B. What are the advantages and disadvantages of each option? Be sure to support your answers.
C. What would you ultimately choose to do? What is your financial reasoning behind this choice? Consider supporting your answer with
quantitative data.

I will thumbs up well-explained answers!

Answer 1

Mathematically stock both are same as you are getting $5000 as cash but the value of the stock is also same (50*100=5000).

Advantage of having cash are liquidity and you are safe from any capital losses. But at the same time, you may expend the cash, you lose value of cash over time because of inflation, you will not earn any additional interest on idle cash.

Advantage of stocks: Stocks can give you more return fixed income security as they are more risky. You can earn dividend income form stocks.

Disadvantages of stock: Stocks can give you negative return.

It depends on the risk taking propensity of the person what he will actually do. But if the company is good then it would be wiser to have the stock although there is risk involved whether the company good or bad. But it will save your money. But if you have the idle cash on hand it will loose value over time due to inflation and also you can spend the money any time.So, it is better to have the bonus as stock.