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The valuation processes for stocks and bonds are about equally accurate. Evaluate this statement.

The valuation processes for stocks and bonds are about equally accurate. Evaluate this statement.

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Answer #1

The valuation of stock is done using the discounting of cash flow approach using cost of capital. The future value of cash flows are projected using various model. Cost of capital is computed using CAPM. The valuation is fairly accurate if all the variables are calculated accurately.

The value of bond is equal to the present value of the cash flow from coupon payments and principal repayment using suitable discount rates.

The valuation of both the stock and bond are based on the present value of the cash flows and which are fairly accurate.

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