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Why is valuing common stock more difficult than valuing bonds? Group of answer choices Common stock...

Why is valuing common stock more difficult than valuing bonds?

Group of answer choices

Common stock is a long-term security and a bond is a short-term security.

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.

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Answer #1

Answer : 4th option   It is more difficult to forecast future common stock cash flows than bond cash flow

Valuing common stock is more difficult than valuing bonds because the future cash flows associated with the stock is more difficult to predict than that of bonds. The stocks do not have a finite maturity and the future cash flows. Thus, the stock valuation techniques are based on some assumptions regarding the future cash flows.

Difficulty of valuation is not based on the risk level, maturity or seniority of the common stocks. It is only because of the uncertainty of future cash flows.

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