Valuing equity is more challenging than valuing bonds because with bonds there is a legal commitment to paying interest and repaying the principal, but with equity there is no such commitment associated with dividends.

Question

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Equity valuation is more challenging because, unlike bonds which have fixed interest payments and a maturity date for principal repayment, equities (stocks) do not guarantee dividend payments or any specific financial return, making their future cash flows uncertain and harder to predict.

Valuing Equity Is More Challenging Than Valuing Bonds Because with Bonds