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

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