Risks, Needs, and Opportunities for Investors

Essay
Your Name
Subject and Section
Professor’s Name
October 20, 2020
Understanding the relationship between investment opportunities, needs, and risks is essential for any investor. It allows him to be able to make strategic decisions on how to manage his finances and increase the profitability of his investments. In this article, the author would focus on an analysis of different cases when it comes to investment management. Notably, a closer look at the advantages and disadvantages of each decision in each scenario would be discussed in greater detail. In the end, the author would like to provide the pieces of information necessary to make this decision.
Case A: Student Finances
Financial Values
In the case, it was said that the school that the student would like to attend costs $100,000. Accordingly, he has 500 shares of Apple (AAPL) stocks and 100 Apple Savings Bonds with $100 denominations in a 4.25% coupon rate. From these facts, the following prices could be obtained.
AAPL Stocks
Current price = $118.64
No. of shares of Apple stock = 500 shares
Market value of Apple stock = $118.64*500 shares = $59,320
Apple Bonds
No. of bonds = 100
Denomination = $1000
Coupon Rate = 3.25%
No. of years to maturity = 10 Years -5 years = five years
Assuming that the rate for the bonds is similar to its coupon rate, then face value would be as is. Thus
Bond price = $1000*100 = $100,000
Market Price of bonds = $100,000
Based on this scenario it seems that the current market price of bonds (provided that rate is equal to coupon rate) is equal to $100,000, then it would be best to sell the bonds instead of the stocks to reduce the fees incurred with multiple transactions.
Decision Tradeoffs
In the preceding section, it was shown that it is possible for the student to sell his AAPL stocks and a portion of his bonds, or sell off all his Apple bonds to cover the costs of his schooling. In making his decision, nonetheless, it is essential to determine his priorities and his risk tolerance.
On the one hand, if the student sells a combination of his stocks and bonds, then he would still be able to maintain his hedge strategy for his remaining portfolio would still be diversified. This is wise if the student is risk-averse and would not want to tolerate the r...