From an investor risk standpoint, common stock are _____ than bonds, because wit

Question

From an investor risk standpoint, common stock are _____ than bonds, because with stocks, ___________________

a. Riskier; may not receive any dividends, and company never has to redeem your shares b. Riskier; have a promise of dividends, but not redemption of shares by the company

c. Less risk; dividends are usually more than interest, and the company has to redeem shares at par value upon demand by the investor

d. Same risk; have the same assurances of dividends and redemption as with bonds which pay interest and face value

We are trying to value a company which analysts expect to grow at a 16% rate for the next five years. Most appropriate way of valuing this firm is to

a. Can't really value companies based upon events that have not yet occured
b. Use price-earnings multiples of comparable companies
c. Use at least a two-stage growth model, with the last growth rate being a sustainable rate
d. Use the single stage valuation formula

I want to understand

Explanation / Answer

a)Riskier; may not receive any dividends, and company never has to redeem your shares

c. Use at least a two-stage growth model, with the last growth rate being a sustainable rate

Two stage model will be the best way of valuation as we would estimate the value using the 16% growth rate and the sustainable growth it is expected to continue after the initial years.

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