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Chapter 4:   The Valuation of Long-Term Securities

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1. The liquidation value of a firm is based on its future cash flows.

2. The book value of a firm is equal to the common stock equity account on its balance sheet.

3. The book value of a firm and the market value of a firm are generally identical.

4. In valuing a security, we only need to know what the future cash flows will be.

5. Long-term debt securities and bonds are equivalent terms.

6. The amount a bond actually sells for may be higher or lower than the value printed on it -- its face value.

7. Common stocks that pay no dividends are generally priced lower than dividend-paying stocks.

8. There is more uncertainty associated with the future returns of common stocks than with the returns of bonds and preferred stock.

9. When interest rates go up, the market price of a bond goes up.

10. The yield on common stock comes from two sources: the dividend yield and the capital gains yield.

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