The cash flows associated with common stock are more difficult to estimate than those related to bonds because stock has a residual claim against the company versus a contractual obligation for a bond.

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Common stock represents a fractional ownership in a company, and as such, the cash flows associated with it depend on the company's profitability and management decisions. In contrast, bonds have a fixed coupon payment and maturity date, making their cash flows easier to estimate. Additionally, in case of bankruptcy or liquidation, bondholders have priority over common stockholders in terms of claiming assets, further complicating the estimation of cash flows associated with common stock.

The Cash Flows Associated with Common Stock Are More Difficult