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CFA Level I · CFA Level I Exam · Introduction to Equity Valuation

An analyst is preparing a research report on a listed manufacturer. Which of the following best describes the purpose of the report's section on risks and assumptions behind the valuation?

The risks and assumptions section lets readers judge how sensitive the valuation conclusion is to the inputs used. It does not guarantee any target price, and it does not replace disclosure of the valuation model; it supports transparent, well-founded communication of the analysis.

  1. AIt lets readers judge how sensitive the conclusion is to the inputsCorrect
  2. BIt guarantees that the target price will be achieved
  3. CIt replaces the need to disclose the valuation model used

Explanation

A research report should disclose the key assumptions and risks so readers can assess how sensitive the valuation and recommendation are to those inputs. It cannot guarantee a result, and it complements rather than replaces disclosure of the model.

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