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Should ali buy the stock or the bonds

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Reference no: EM132684916

Ali has $50,000 to invest. He is considering two investments. The first is a utility company common stock that costs $50 per share and pays dividends of $2 per share. He does not expect the value of this stock to increase. The other investment under consideration is a highly rated corporate bond that currently sells for $1000 and pays annual interest rate of 5%. After 10 years these bonds will be repaid at par-value ($1000 per $1000 invested). He will sell the stock after 10 years if he buys it. If he buys bonds, in 10 years he will get back the amount he invested.

Question 1. How many shares of the stock can he buy.

Question 2. How much will he receive each year in dividend income

Question 3. What is total amount he would have from his original $50,000 if he purchased the stock.

Question 4. What is the total amount he would have from his original $50,000 if he purchased the bond.

Question 5. Based only on your calculations and ignoring risk factors, should Ali buy the stock or the Bonds?

Reference no: EM132684916

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