Why is stock valuation more difficult than bond valuation? | Homework.Study.com (2024)

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• Why is stock valuation considerably less precise than bond valuation? Give at least two reasons.
• Discuss why estimating the value for a bond is easier than estimating the value for common stock.
• Why is it contended that bond-market indexes are more difficult to construct and maintain than stock-market indexes?
• What factor or factors make the valuation of common stocks more complicated than the valuation of bonds and preferred stocks?
• Why is a company valued so differently between its post-money investment valuation and its subsequent 409A valuation?
• Why would a company issue more shares than debentures and bonds?
• Why would an individual invest in debentures rather than shares?
• Why does the present value equation appear to be more useful for the bond investor than for the common stock investor ?
• Why are bond ratings important?
• Explain why publicly traded stocks tend to see more price volatility than publicly traded corporate bonds.
• Why might a firm want to maintain a high bond rating? What has been happening to bond ratings in recent years?
• Explain why a common stock should be evaluated in a portfolio context as opposed to being evaluated in isolation.
• Why is it important for corporate managers to understand how bonds and stocks are priced?
• What factors affect a company's bond rating?
• Explain why investors look at a stock's P/E ratio rather than its price to determine if the stock is cheap or expensive.
• Discuss the importance of bond ratings to investors.
• Speculate as to why an investor may buy into the bond market when prices are dropping. Provide support for your rationale.
• Why should a financial manager understand the valuation process?
• Try to find some reasons why Stock and bond markets should be weakly correlated.
• Why should a convertible bond never sell for less than its conversion value?
• Explain why bond investors may earn a capital gain or capital loss in addition to the interest earned on the bond.
• Why can the market price of a stock differ from its true (intrinsic) value? Explain.
• How does the market determine the fair value of a bond?
• 1. Explain two reasons why IPOs are frequently undervalued. 2. Who would be able to profit off of undervalued IPOs?
• Explain two reasons why IPOs are frequently undervalued. Who would be able to profit off of undervalued IPOs?
• Why can't we convert equity shares into debentures?
• What factors determine a company's bond rating?
• Why do investors generally consider common stock to be riskier than preferred stock?
• Why is Net Asset Value (NAV) only reported by funds, but not stocks?
• Explain why investor sentiment can affect stock prices.
• Explain why there is a tendency for IPOs to be underpriced.
• What are some of the factors that can affect a bond price? Answer in detail.
• Why do companies issue convertible securities?
• What factors determine a bond's market price?
• What are the difficulties in using the PE ratio to value stock?
• Explain stocks and preferred stocks. Also, explain why you would invest or not invest in stocks or bonds.
• What is the reason for the increase in stock price after the stock repurchase?
• Why don't you use the intrinsic value to pick a stock?
• Why companies sale securities in unit.
• Describe the two reasons why investors purchase common stock.
• Discuss some reasons why an investor with a long time horizon might choose to invest in common stocks, even though they have historically been riskier than government bonds or T-bills.
• Why is pure passive management not possible with a bond portfolio?
• Explain how you deal with the income from marketable securities in a firm's valuation.
• Why is the "loss on issue of debentures" treated and placed under current assets in the balance sheet of a company?
• What is the purpose of a performance attribution model? In terms of the price-to-book ratio, why are value stocks generally considered those with low price-to-book ratios?
• Explain why preferred stock is considered to be a hybrid of equity and debt securities.
• Provide two reasons why it is more difficult to assess the performance of a hedge fund portfolio manager than it is to assess the performance a typical mutual fund manager.
• What are typical spreads for T-notes and T-bonds? Why do they differ from issue to issue?
• The following statement is dangerous or misleading. Explain why. "All investors should prefer stocks to bonds because stocks offer higher long-run rates of return."
• Why are the discounts on shares and debentures treated as assets?
• Why may a bond be called if it is selling at a premium?
• What advantages and disadvantages do bonds offer investors relative to stocks? What type of investors are likely to be interested in bond funds versus stock funds?
• Explain why there are concerns about systemic risk in the bond market and other debt markets.
• Why are debentures issued on a discount recorded in the assets side of a balance sheet?
• Discuss why growth rate models are practical and convenient ways to look at stock valuation.
• Why can investments in inventory be costly? Explain.
• Explain how an asset swap can be used to hedge the interest rate risk in a bond portfolio.
• Why is there a difference in the treatment of equity shares and debentures?
• Why would you expect asset-based valuation to be more difficult to apply to a technology firm, like Dell, Inc., than to a forest products company, like Weyerhaeuser?
• Explain why yields to maturity and bond prices move in opposite directions.
• Briefly explain why yields to maturity and bond prices move in opposite directions.
• Name any four reasons why a bond would decrease in value.
• Why is underpricing not a great concern with bond offerings?
• Explain why the bid-ask spread on most municipal bonds would be greater than the spread on U.S. Treasury bonds.
• Evaluate US Treasuries, Municipal Bonds, and Corporate Bonds. Why is this relevant to an organization?
• Explain why it is important for stock investors to understand correlations between stock returns.
• Explain why after-tax costs are utilized when computing component cost of bonds, but not preferred and common stock.
• Explain why after-tax costs are utilized when computing the component cost of bonds but not preferred and common stock.
• What is the importance of bond ratings?
• Why are bond-rating agencies so vital in the CMBS market? What unique role do they play?
• Explain why after-tax costs are utilized when computing component costs of bonds, but not preferred and common stock.
• Why doesn't the risk premium of a stock depend on its diversifiable risk?
• What is a P/E ratio, and why is it important in stock valuation?
• Explain briefly why corporations invest in stocks and debt securities.
• Why are there no value investing firms outside of Berkshire Hathaway?
• Determine the direction of bond prices over the last year (2019) and explain the reason for it.
• A) What do traders mean when they refer to stocks as glamour stocks and value stocks? B) Why would you expect asset-based valuation to be more difficult to apply to a technology firm, like Microsoft t
• Explain why many corporations invest in stocks and debt securities.
• Why have stock analysts switched to using forward P/E ratios to justify valuations instead of traditional L12M P/E ratios?
• Why do closely held firms need to have an outside appraiser to determine their value? What are the reasons for valuation?
• Why consider bonds?
• Why does a firm's market value differ from its book value? Explain.
• Why is limited liability important to investors who purchase stock?
• Why do valuation models lend themselves to "playing with mirrors"?
• Why should investors pay attention to expense ratios?
• Explain why tax-free costs are utilized when computing component cost of bonds, but not preferred and common stock.
• Why do many firms choose to issue stock dividends?
• Why is there a cost to retained earnings in investor-owned business?
• What are levered and unlevered cash flows? Why do we conduct separate valuation analyses for both scenarios?
• What do bond ratings measure? Explain briefly.
• Why can expectations of an acquisition affect the value of the target's stock?
• What is the purpose and importance of the stock market indexes?
• Explain why and how a firm's cost of capital may decrease when the firm s stock is cross-listed on foreign stock exchanges.
• Why might individuals purchase futures contracts rather than the underlying asset?
• Identify and explain one key factor that a financial manager should evaluate when determining whether to invest in stocks or bonds.
• Why is the threat of devaluation an insufficient reason for a firm to build up its stocks of inventories?
• Explain why using OAS provides a better measure of the relative value offered by a corporate bond (the price) than the spread to YTM method when comparing a corporate bond to a comparable treasury.
• From a tax perspective, which should an investor acquire for a retirement account: a firm's stock or its bonds? Explain.
• Why is the earnings per share not a consistently good measure of a firm's performance?
• Why is earning per share not a consistently good measure of a firm's performance?