Certified Valuation Analyst Practice Exam 2025 – Complete Prep Guide

Disable ads (and more) with a premium pass for a one time $4.99 payment

Question: 1 / 220

What is the primary aim of applying marketability discounts in valuations?

To increase the overall asset appreciation

To reflect the diminished value of less liquid assets

The primary aim of applying marketability discounts in valuations is to reflect the diminished value of less liquid assets. When assets are not easily tradable or have restrictions on their sale, investors expect a reduced selling price compared to more liquid assets. This is due to the higher risk and longer time frame associated with liquidating such assets, which directly impacts their desirability and, consequently, their market value. Marketability discounts quantify this risk and the potential for loss, ensuring that the valuation accurately represents the economic realities faced by investors.

This approach acknowledges that buyers typically require a higher potential return for purchasing assets that are difficult to convert into cash, leading to a lower perceived value. Enforcing this concept is critical for ensuring that valuations are realistic and reflect the true nature of the asset’s liquidity.

Get further explanation with Examzify DeepDiveBeta

To adjust for economic downturns

To decrease profitability forecasts

Next

Report this question

Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy