In the Valuation of Common Stock, the Simple Annuity and Perpetuity

question 67

Multiple Choice

In the valuation of common stock, the simple annuity and perpetuity formulas used in the valuation of bonds and preferred stock are not generally applicable because _____.

• A) investors buy common stock for much different reasons than they buy bonds or preferred stock
• B) returns accruing to common stock should never be capitalized (discounted) in order to determine a price
• C) unlike bonds and preferred stock, common stock is a short-term investment
• D) unlike payments on most bonds and preferred stock, common stock dividends are normally expected to grow over time

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Definitions:

Distributive Bargaining

A negotiation strategy where two or more parties vie for the distribution of a fixed asset or resource, often resulting in a win-lose outcome.

Labor Unions

Organizations formed by workers to protect their collective interests, rights, and working conditions.

Concessions

Compromises made by one party in negotiations, typically involving relinquishing certain demands to reach an agreement.

Rank And File

The ordinary members of an organization, especially a union, as compared to its leadership.