Certified Valuation Analyst (CVA) Practice Exam

Which of the following terms are often (properly) interchangeable?

1. Market value and intrinsic value

2. Marketability and liquidity

3. Control premium and market discount

4. Discounted cash flow and net present value

The correct answer is: Marketability and liquidity

Marketability and liquidity are terms that are often used interchangeably in the context of valuation and investments. Marketability refers to the ease with which an asset can be bought or sold in the market, while liquidity pertains specifically to how quickly an asset can be converted into cash without significantly impacting its price. When an asset is highly marketable, it typically indicates that there is a strong demand for it, which in turn means it is also likely to be liquid. In practical terms, an asset that is both marketable and liquid can be sold quickly and at a price that reflects its fair market value, making it desirable for investors. Understanding the relationship between these two concepts is crucial for valuers, particularly when assessing the value of securities, real estate, or other financial instruments. This connection is reflected in investment decisions, where high marketability often corresponds with high liquidity, facilitating smoother transactions and enabling investors to realize their investments more efficiently. The other terms listed have distinct meanings and should not be viewed as interchangeable because they refer to different concepts in financial analysis. For example, market value and intrinsic value represent different ways of assessing an asset's worth. Similarly, control premium and market discount address different aspects of valuation related to ownership and capital structure. Discounted cash