CFA Level I · CFA Level I Exam · Equity Instrument Features
An analyst values a privately held company using the price of comparable listed firms. Relative to the listed comparables, the private company's value is most likely to be adjusted for:
The value is most likely adjusted by a discount for lack of marketability. Private company shares cannot be sold quickly or at a transparent price, so investors require compensation relative to the more liquid listed comparable companies.
- Aa discount for lack of marketabilityCorrect
- Ba premium for greater liquidity
- Ca discount because of higher disclosure standards
Explanation
Private shares cannot be sold quickly at a observable price, so valuers apply a discount for lack of marketability. A liquidity premium or disclosure discount runs in the wrong direction.
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