Certified Valuation Analyst (CVA) Practice Exam

Restricted stock studies and pre-IPO studies aid the analyst in quantifying the:

1. Control premium

2. Marketability discount

3. Fair market value

4. Asset liquidation value

The correct answer is: Marketability discount

Restricted stock studies and pre-IPO studies are instrumental in determining the marketability discount, which reflects the reduction in value that an investor may be willing to accept for an asset that cannot be easily sold or is subject to restrictions on transferability. These studies provide empirical data on the price differential between closely held shares and publicly traded shares, highlighting the liquidity issues that often accompany restricted stocks. Marketability discounts are calculated to adjust the value of a company or its stock to account for the reduced ability to quickly sell these shares on the open market. Therefore, when investors assess the potential return on investment in closely held entities compared to publicly traded ones, the findings from restricted stock and pre-IPO studies become particularly relevant. This distinction is critical for analysts who aim to provide a more accurate valuation that considers the unique factors influencing the marketability of the investment in question.