Name two patterns of cash flows for a share of common stock. How does the market define the value of the most common cash flow pattern for common stock?
Cash flows for a share of common stock contain dividend payments and the price received for the eventual sale of the share. Common stock valuation is complex by the fact that common stock dividends are hard to predict compared to the interest and principal payments on a bond, or dividends on preferred stock. Certainly, corporations may pay common stock dividends not regularly, or not pay dividends at all.
Since with bonds and preferred stock, the market values common stock by estimating the current value of the expected future cash flows from the common stock.