CVA Discount Rates and Cost of Capital Flashcards
6 cards from real Certified Valuation Analyst practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CVA Discount Rates and Cost of Capital flashcards as text
In the build-up method for estimating cost of equity, which component is added to the risk-free rate to account for the size of the subject company?
Answer: Small company risk premium
The small company risk premium (size premium) compensates investors for the additional risk of investing in smaller companies relative to large-cap stocks.
The Weighted Average Cost of Capital (WACC) is used in business valuation primarily when:
Answer: Valuing invested capital using a debt-free net cash flow stream
WACC discounts invested capital (debt-free) cash flows and is appropriate when the capital structure includes both debt and equity.
Which risk-free rate is most commonly used in U.S. business valuations as the base for the build-up method?
Answer: Yield on 20-year U.S. Treasury bonds
The 20-year U.S. Treasury bond yield is the standard risk-free rate proxy in U.S. valuations because it matches long-term investment horizons.
Beta in the Capital Asset Pricing Model (CAPM) measures:
Answer: Systematic (market) risk of an investment relative to the overall market
Beta measures systematic risk — how much a security's returns move in relation to overall market movements — and cannot be diversified away.
When using Duff & Phelps size premium data, which decile has the highest size premium?
Answer: Decile 10 (smallest companies)
The smallest companies (Decile 10) carry the highest size premium because they are the most illiquid and risky relative to large-cap benchmarks.
The company-specific risk premium (CSRP) in the build-up method is intended to capture:
Answer: Risks unique to the subject company not already reflected in other premium components
CSRP reflects idiosyncratic risks such as customer concentration, management depth, or reliance on key personnel that are specific to the subject company.
How this page was made: written with AI tools and published by Nathan Beja, founder of Practice Test Geeks, who is responsible for its content. Exam facts are checked against the official sources listed below. Not reviewed by a subject-matter expert. Editorial policy
Sources & references
Exam facts on this page (fees, format, dates, passing scores) are checked against these official sources; the date is our last check. Editorial policy
- nacva.com — Score validity, eligibility, time limit, passing score, test delivery, exam format, late registration, retake fee, retake policy, score release · verified Nov 2026