Appraisal
Valuing an asset by expert estimate, usually from comparable transactions, rather than by an observed trade. Appraised values lag and smooth the true series, so volatility and correlation are understated.
Where you will meet it
Appraisal appears in 16 learning outcomes on the CFA syllabus. A few of them:
- Contrast public equity securities with private ones
“And valuation is by negotiation or by periodic appraisal rather than by continuous trading.”
- Explain what sets alternative investments apart from traditional ones
“Alternatives differ from listed stocks and bonds on several axes at once: they are illiquid, often with multi-year lock-ups; they are valued infrequently and sometimes by appraisal rather than by trade; they use leverage and derivatives more freely; and their fee structures include performance participation as well as a management charge.”
- Contrast the key features of real estate investments that matter for valuation
“Each building is unique in location, age and tenants, so there is no single market price and value must be estimated, often by appraisal.”
- Distinguish private investments from listed ones by their features, and explain how the two kinds of market differ in character
“Private holdings are illiquid, held for years, and valued by appraisal or model rather than by a traded price.”
See also
Practise it
Practise appraisal until it is automatic: questions that explain every wrong option.
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