NACVA Exam CVA Topic 6 Question 94 Discussion

Actual exam question for NACVA's CVA exam

Question #: 94
Topic #: 6

Most analysts agree that one of the most important factors in the estimation of the direct capitalization rate for the excess earnings is the perceived persistence of the excess earnings. The longer the time period and the greater the uncertainty of the expectation of excess earnings, the __________the direct capitalization rate.

ALower

BGreater

Cfixed

DIt depends

Show Suggested Answer

Suggested Answer: A

by Reid at Aug 27, 2024, 08:28 PM

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Ena

2 months ago

The answer is obviously B. Greater risk means greater return, duh. Though I'm surprised they didn't ask about the impact of inflation on the capitalization rate - that's the real killer question here.

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Shonda

1 months ago

Yes, that's correct. The greater the uncertainty, the higher the direct capitalization rate.

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Beckie

1 months ago

So, the answer is B) Greater, right?

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Jesus

1 months ago

Inflation can definitely have a big impact on the capitalization rate.

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Mindy

2 months ago

I agree, greater risk does mean greater return.

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Lasandra

2 months ago

The direct capitalization rate? Is that like when you directly capitalize on your boss's embarrassing mistake? Asking for a friend...

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Renea

3 months ago

I dunno, this feels like a trick question. Is it D? It depends on the specific situation, right?

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Margret

3 months ago

That's a good point, maybe it depends on the specific situation.

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Howard

3 months ago

Hmm, the question doesn't mention anything about risk. I think the direct capitalization rate should be lower if the excess earnings are less persistent. A sounds right to me.

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