posted by Johnny on .
The value of common stock depends on the
A. price of the stock.
B. retirement date.
C. present value of cash flows.
D. coupon rate.
I need help with this one
one of the books I read it says "Value of common stock depends on present value of expected future cash flows." so I would assume the anwer is C
There are several ways of valuing stock, C is one of them.
To a "value" stock investor who follows the teachings of Benjamin Graham, the answer is (c), but in most industries, no one can be sure of future cash flows. So you need to be a good fortune teller and judge of the character of management. That is what Warren Buffett has done so well. Until now.
What a stock is "worth" at a given time is of course what the market will pay for it.