Question

why is valuing common stock more difficult than valuing bonds? group of answer choices because bonds have more seniority than common stocks. because common stock is less risky to the investor than a bond. it is more difficult to forecast future common stock cash flows than bond cash flow. bondholders do not have access to detailed financial information common stock is a long-term security and a bond is a short-term security. valuing bonds often involves making subjective judgments

Answer 1

Valuing common stock is more complex than bonds due to the difficulty in forecasting variable future cash flows, such as dividends and capital gains, and because stocks are more volatile than bonds, which mostly have fixed interest payments and a set maturity. Therefore correct option is C

Step-by-step explanation:

Valuing common stock is more difficult than valuing bonds because it is more challenging to forecast the future cash flows of common stock. Stocks are subject to greater volatility and variability in returns compared to bonds. Bonds have more predictable cash flows due to fixed interest payments and maturity dates. With stocks, one must consider both potential capital gains and dividends, which are uncertain and reflect investors' subjective beliefs about a company's future performance. While bonds also involve discounting future cash flows to present value, their cash flows are typically more stable. Therefore, differences in forecasting and variability of future benefits make common stock valuation more complex.