Which of the following is not true of liquidity or marketability risk or discount?
A) It is measurable.
B) It is believed to have declined in recent years
C) The magnitude of the discount or risk is inversely related to the size of the investor's equity ownership in the business.
D) The magnitude of the discount or risk is directly related to the size of the investor's equity ownership in the business.
E) It is important to adjust the discount rate for liquidity risk.

Question

Quizplus · Accepted Answer

The statement "The magnitude of the discount or risk is directly related to the size of the investor's equity ownership in the business" is not true. The discount or risk is actually inversely related to the size of the investor's equity ownership. This is because smaller ownership stakes are less liquid and less marketable than larger ones, leading to a higher discount or risk. The other statements are true.

Which of the Following Is Not True of Liquidity or Marketability