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

---

Definitions:

Host-Based Pay

Expatriate pay comparable to that earned by employees in a host country.

Skill-Based Pay

A compensation system that sets pay levels based on the skills or knowledge an employee possesses, rather than their job title or position.

Third-Country-Based Pay

A compensation strategy where an employee's pay is based on the standard of living and market rates in a country different from both the home and host countries.

Codetermination

A practice where workers participate in the management of a company through representation on its board or committees.