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Tony Lee, a CFA, is an analyst specialising in bond valuation; while Ann Jones, also a...

Tony Lee, a CFA, is an analyst specialising in bond valuation; while Ann Jones, also a CFA, is an equity analyst specialising in stock valuation. Who faces greater difficulty in the security valuation? Explain why.

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Answer #1

Bond valuation is more difficult than stock valuation. This is because apart from checking and verifying of the quality of businesses, their ability to payback and their sustainability, the people valuing bonds also have to be careful about the interest rate envirnoment. If the interest rate changes because of some event or is changed by the central bank, it directly changes the bond values and have to be taken care of by those valuing them. Bond math is more complex because there are also various maturities of the bonds which have to be treated separately using yield curves etc.

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