Question

Valuing common stock is considered easier than valuing bonds because:

Group of answer choices

there is little or no par value to discount

none of these statements are true; valuing stock is considered harder

there is no set maturity date

annual dividends are less than interest payments

Answer 1

A bond is easier to value than a common stock. All that the analyst needs to know is whether the company has enough cash to honor the interest and the face value payments on the bond. Since the bondholder cannot receive more than a fixed sum, further corporate profits are of no concern to the bondholder. The stock analyst, however, must more precisely estimate the company's profits, because the more money the company earns, the more of it shareholders can receive as dividends.

Hence, the correct answer is Option 2 (none of these statements are true; valuing stock is considered harder).