Using Present Value to Calculate Stock Prices Is ________ Than

question 163

Multiple Choice

Using present value to calculate stock prices is ________ than using present value to calculate bond prices because ________.

• A)less accurate; dividend payments for stocks are known with certainty but coupon payments for bonds are not
• B)less accurate; coupon payments for bonds are known with certainty but dividend payments for stocks are not
• C)more accurate; dividend payments for stocks are known with certainty but coupon payments for bonds are not
• D)more accurate; coupon payments for bonds are known with certainty but dividend payments for stocks are not

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Definitions:

Taxable Equivalent Yield

Taxable equivalent yield calculates the yield a taxable bond needs to match the after-tax yield of a tax-exempt bond, considering the investor's tax rate.

Tax Bracket

A range of incomes taxed at a particular rate, with progressive tax systems applying higher rates to higher income levels.

Treasury Bonds

Long-term government securities issued by the U.S. Department of the Treasury, with a maturity period typically extending beyond ten years, offering periodic interest payments and repaying the principal at maturity.

Bid Price

The maximum price that a buyer is willing to pay for a security.