CVA Discounts, Premiums, and Adjustments Flashcards
7 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 7 CVA Discounts, Premiums, and Adjustments flashcards as text
Which of the following best describes the Discount for Lack of Marketability (DLOM)?
Answer: A reduction in value applied to an interest that cannot be quickly sold at a reasonable price
DLOM reflects the reduced value of an ownership interest that lacks a ready market, making it difficult to sell quickly at a fair price.
A minority interest discount is applied primarily because minority shareholders lack:
Answer: The ability to control business decisions such as distributions and asset sales
Minority shareholders cannot unilaterally control key business decisions, which reduces the value of their interest relative to a controlling interest.
The control premium is best defined as:
Answer: The additional value an investor pays to obtain a controlling interest over a business
A control premium represents the extra value a buyer is willing to pay to gain the ability to control business operations, distributions, and strategic decisions.
Which method is most commonly used to quantify the Discount for Lack of Marketability using empirical data?
Answer: Restricted stock studies and pre-IPO studies
Restricted stock studies and pre-IPO studies compare transactions of marketable versus non-marketable interests to empirically estimate DLOM.
When moving from a controlling interest value to a minority, non-marketable interest value, the analyst typically applies adjustments in which order?
Answer: Minority interest discount first, then DLOM
The standard sequence is to first apply the minority interest discount (moving from control to minority) and then apply DLOM (moving from marketable to non-marketable).
Which of the following is an analytical model used to estimate DLOM based on option pricing theory?
Answer: The Chaffe put option model
The Chaffe put option model estimates DLOM by pricing a hypothetical put option that would allow the holder to sell an otherwise unmarketable interest.
A Discount for Lack of Control (DLOC) is most closely related to which of the following?
Answer: The inability of a minority shareholder to direct operations or declare dividends
DLOC reflects the diminished value of an interest that does not confer the right to control decisions such as compensation, dividends, or asset sales.
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