Applying the valuation procedure to ordinary shares is more difficult than applying it to bonds because
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W begin by definition of terms:
ORDINARY SHARE ==>> This is a share whose holder is entitled to varying dividends which sometimes may be missed depending on the company's fortune.
Bond ==>> This is a tradeable financial instrument.
Valuation procedure ==>> Sequence of steps prescribed in a valuation Approach to arrive at an estimate of value.
Applying valuation procedure is more difficult to apply in ordinary shares than on bonds because:
1.) The size and timing of the dividend cash flows are less certain than the coupon payments of a bond.
2.) Ordinary shares have no final maturity date.
3.) Unlike the rate of return or yield on bonds, the rate of return on ordinary shares is not observable.
The reasons above make it more difficult to use valuation procedure on ordinary shares than bonds.
ORDINARY SHARE ==>> This is a share whose holder is entitled to varying dividends which sometimes may be missed depending on the company's fortune.
Bond ==>> This is a tradeable financial instrument.
Valuation procedure ==>> Sequence of steps prescribed in a valuation Approach to arrive at an estimate of value.
Applying valuation procedure is more difficult to apply in ordinary shares than on bonds because:
1.) The size and timing of the dividend cash flows are less certain than the coupon payments of a bond.
2.) Ordinary shares have no final maturity date.
3.) Unlike the rate of return or yield on bonds, the rate of return on ordinary shares is not observable.
The reasons above make it more difficult to use valuation procedure on ordinary shares than bonds.
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Explanation:
- bond is a tradeable financial instrument
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