Applying the valuation procedure to ordinary shares is more difficult than applying it to bonds because:
A) the size and timing of the dividend cash flows are less certain.
B) ordinary shares have no final maturity date.
C) the rate of return on ordinary shares is not directly observable.
D) All of the above are true.

Question

Quizplus · Accepted Answer

All of the options listed are true and make applying the valuation procedure to ordinary shares more difficult than applying it to bonds. The cash flows from dividends are not guaranteed, and their timing and magnitude are uncertain. Additionally, unlike bonds, ordinary shares have no final maturity date, and the rate of return on ordinary shares is not directly observable.

Applying the Valuation Procedure to Ordinary Shares Is More Difficult