Certified Valuation Analyst (CVA) Practice Exam

Which of the following sources is considered a source for size risk premiums in developing a discount rate?

1. Mergerstat

2. Marketline

3. Bloomberg

4. Thomson Reuters

The correct answer is: Mergerstat

Mergerstat is recognized as a key source for size risk premiums used in developing discount rates. This publication provides valuable data regarding transaction multiples and market activity, particularly concerning small to mid-sized companies. It compiles a variety of acquisition transaction data, enabling analysts to derive insights about the valuation premiums that apply to companies of different sizes. This is particularly important because size risk premiums reflect the additional risk associated with investing in smaller, less established firms compared to larger, stable companies. When determining a discount rate, it is essential to incorporate factors such as size risk, as smaller companies often face higher volatility and potential liquidity issues, leading to greater expected returns. Mergerstat provides specific size premium data that helps analysts make informed adjustments to discount rates based on the size of the company being valued. While other sources like Bloomberg, Marketline, and Thomson Reuters also provide financial data, they are typically more generalized and may not focus specifically on size risk premiums for valuation. Therefore, Mergerstat stands out as a specialized source that directly addresses the need for size risk premiums in the valuation process.