Question

Bonus Versus Stock A. The company has offered you a $5,000 bonus, which you may receive...

Bonus Versus Stock

A. The 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.

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Answer #1

A. Considering time value of money, the bonus received today has more worth than stock converted to cash on a later date. Present value of a dollar is higher than the future value.

B. Advantages : The cash is immediate and is available for liquidity needs today.

Disadvantages: The benefits of stock price appreciation may not be realized if bonus is encashed.

C. Taking financial reasoning in to consideration I would choose to invest in stocks due to appreciation of value, higher returns and investment for future needs.

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