Question

Common stock is more difficult to value than corporate bonds because: a. easy to observe the...

Common stock is more difficult to value than corporate bonds because:

a.

easy to observe the required rate of return
b.

some firms do not pay a dividend
c.

the expected future cash flows are known in advance
d.

the life of the investment finite
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Answer #1

Answer = b.some firms do not pay a dividend

Explanation:

Following are the reasons that the common stock is more difficult to value in practice than a bond

1. with common stock, not even the promised cash flows are known in advance.

2. the life of the investment is essentially forever because common stock has no maturity

3. there is no way to easily observe the rate of return that the market requires

Hence in the given case expect for b. all statements are contrary to the given statement so the answer is b.some firms do not pay a dividend

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