Why is valuing common stock more difficult than valuing bonds?
A)Common stock is a long-term security and a bond is a short-term security.
B)Because bonds have more seniority than common stocks.
C)Because common stock is less risky to the investor than a bond.
D)It is more difficult to forecast future common stock cash flows than bond cash flow.

Question

Quizplus · Accepted Answer

Valuing common stock is more difficult than valuing bonds because it is more difficult to forecast future common stock cash flows than bond cash flow, which makes it more challenging to estimate the intrinsic value of the stock. On the other hand, bonds have more certainty regarding future cash flows, making it easier to value them. The other options, A and C, are not relevant to the difficulty of valuing common stock versus bonds, and option B is incorrect as bonds usually have more seniority over common stocks.

Why Is Valuing Common Stock More Difficult Than Valuing Bonds