Certified Valuation Analyst (CVA) Practice Exam

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What does "DLOM" stand for?

Discounted leverage of market operations management
Discount for lack of marketability
Dynamic liquidity of market opportunities management
Deduction for lack of operating margins

The correct answer is: Discount for lack of marketability

"DLOM" stands for "Discount for Lack of Marketability." This term is used in financial valuations, particularly when assessing the value of assets that cannot be easily sold or where there is a limited market for the asset. When an asset is not readily marketable, it typically requires a discount to reflect this lack of liquidity. The rationale behind applying a DLOM is that investors typically expect a higher return for investing in less liquid assets due to the additional risks and costs associated with holding and selling those assets. This discount can significantly impact the calculated value of closely-held companies, real estate investments, or any other assets that are not easily converted into cash. None of the other choices convey the correct meaning. The other options refer to terms or concepts that are not standard within the context of valuation methodologies or lack relevance in the discussion of marketability and liquidity. By understanding DLOM and its application, valuators can provide more accurate assessments of assets in situations where marketability is a concern.