- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Valuation
- Learning Module 22. Equity Valuation: Applications and Processes
- Subject 4. Absolute and Relative Valuation Models
CFA Practice Question
Which one of the following is NOT a major advantage of the relative valuation approach?
A. Grounded in a sound economic principle that similar assets should sell at similar prices.
B. The relative valuation approach is simple and easy to understand. It is related to market prices and accounting figures that are readily available.
C. Intrinsic value can be inferred without assuming that the comparison asset is fairly priced.
Explanation: The opposite is true. The method of comparables does not specify intrinsic value without making the further assumption that the comparison asset is fairly priced.
User Contributed Comments 2
| User | Comment |
|---|---|
| D3456 | I picked C, however in B: Related to market prices and accounting figures which are readily available" - Why accounting figures? Does this imply that we don't have to adjust the accounting numbers of comps to ensure consistency? |
| MAGUED | I PICKED C |