Certified Valuation Analyst (CVA) Practice Exam

Which of the following best describes the concept of marketability?

1. The potential for an asset to appreciate in value

2. The rate of return expected from an investment

3. How quickly an interest can be sold and converted to cash

4. The overall risk associated with an investment

The correct answer is: How quickly an interest can be sold and converted to cash

Marketability refers to how easily and quickly an asset or interest can be sold or converted into cash. This concept is crucial in valuations because it directly impacts the perceived value of an asset. Factors influencing marketability include the liquidity of the asset, the demand in the market, and the costs associated with selling the asset. A highly marketable asset can be sold quickly at or near its fair market value, while a less marketable asset may require a discount or take longer to sell, thereby potentially diminishing its value. The other options provided relate to different investment metrics. The appreciation potential speaks to the expected increase in value over time, which does not necessarily correlate with marketability. The rate of return addresses the income generated from an investment rather than how easily it can be sold. Overall risk pertains to the uncertainty surrounding an investment's performance, separate from its marketability. Understanding these distinctions helps grasp why marketability specifically focuses on the liquidity and saleability of an asset.