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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

Which of the following is the most appropriate way for a research analyst to present a price target in a research report?

A price target should be given with the valuation method, the key assumptions and the time horizon. This lets readers understand how the figure was derived and test it, whereas a bare number or a guaranteed return gives no basis and is misleading.

  1. AA single figure with no stated time horizon or basis
  2. BA target price along with the valuation method, key assumptions and the time horizon over which it is expected to be achievedCorrect
  3. CA target price stated as a guaranteed minimum return
  4. DA range of prices without any reasoning to avoid being proven wrong

Explanation

A good report links the target price to a valuation method, the assumptions behind it and a time horizon so readers can judge and test it. A bare figure or a guaranteed return gives no basis and is misleading. A range with no reasoning also fails the transparency test.

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