Marketability discount
A reduction in value for an interest that cannot readily be sold, as with most private company shares. Reflecting the same risk in the discount rate as well would count it twice.
Where you will meet it
Marketability discount appears in 2 learning outcomes on the CFA syllabus. A few of them:
- Explain what has to be adjusted when setting the discount rate for a private firm
“The trap is counting the same risk twice, for example through both a specific premium and a marketability discount.”
- Explain and assess how control and marketability discounts and premiums change the value of a private company
“A discount for lack of marketability reflects the absence of a ready market for the shares and is larger for bigger restrictions and longer expected holding periods.”
See also
Practise it
Practise marketability discount until it is automatic: questions that explain every wrong option.
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