title: | Investment Scenarios: Bonds vs Stocks Analysis | ||||||
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author: | Admin | ||||||
published: | 2024-03-10 | ||||||
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Below are two separate tables that outline the cash‐flow details for each hypothetical scenario over 30 years. These tables assume that in the bond scenario you receive a fixed 5% coupon on a $1,000,000 investment every year (with the principal returned at maturity), and in the stock scenario you have an asset that grows by 30% per year while paying a dividend equal to 1% of its beginning‐of‐year value (with dividends paid out and not reinvested).
For a $1,000,000 bond at 5% annual yield:
A representative table (with a few rows shown and ellipsis for brevity):
Year | Annual Payment ($) | Cumulative Payment ($) | Note |
---|---|---|---|
1 | 50,000 | 50,000 | Annual coupon only |
2 | 50,000 | 100,000 | Annual coupon only |
3 | 50,000 | 150,000 | Annual coupon only |
… | … | … | … |
29 | 50,000 | 1,450,000 | Annual coupon only |
30 | 1,050,000 | 2,500,000 | Coupon + Return of $1,000,000 principal |
Note: The table shows that over 30 years, you receive a total of $2.5 million from the bond—$1.5 million in interest (coupons) plus your original $1 million returned at the end.
In this scenario, you start with $1,000,000. Each year:
Because the 30% annual growth is very powerful, the asset's value compounds dramatically over 30 years. (The mathematical formula for the end value is:
Final Value = $1,000,000 × 1.3^30, which is approximately $2.62 billion.)
Below is a sample table that shows selected years. (All values are approximate due to rounding.)
Year | Beginning Value ($) | Dividend ($) | End-of-Year Value ($) | Cumulative Dividends ($) |
---|---|---|---|---|
1 | 1,000,000 | 10,000 (1% of 1,000,000) | 1,300,000 (1,000,000 × 1.3) | 10,000 |
2 | 1,300,000 | 13,000 (1% of 1,300,000) | 1,690,000 (1,300,000 × 1.3) | 23,000 (10,000 + 13,000) |
3 | 1,690,000 | 16,900 | 2,197,000 | 39,900 |
10 | ~10,608,000 | ~106,080 | ~13,790,000 | ~426,300 |
20 | ~146,150,000 | ~1,461,500 | ~190,000,000 | ~6,300,000 |
30 | ~2,019,600 | ~20,196 | ~2,625,480,000 | ~87,470,000 |
How the Numbers Work:
Year 1:
Year 30:
Note: Because of the very high assumed annual growth rate (30%), the final asset value becomes extraordinarily large, even though the yearly dividend payments remain a small percentage of an ever-growing base.
These tables help illustrate how dramatically different the outcomes can be when comparing a stable fixed-income investment with an extraordinarily high growth stock (noting that a consistent 30% annual growth rate is exceedingly rare and comes with significantly higher risk).
Feel free to adjust or expand these tables further depending on the level of detail you need for your analysis.