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NACVA Exam CVA Topic 6 Question 94 Discussion

Actual exam question for NACVA's CVA exam
Question #: 94
Topic #: 6
[All CVA Questions]

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.

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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
8 days ago
Yes, that's correct. The greater the uncertainty, the higher the direct capitalization rate.
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Beckie
14 days ago
So, the answer is B) Greater, right?
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Jesus
17 days ago
Inflation can definitely have a big impact on the capitalization rate.
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Mindy
29 days 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
2 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
2 months ago
That's a good point, maybe it depends on the specific situation.
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Howard
2 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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Theodora
1 months ago
Denny: Yes, that's correct.
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Delila
1 months ago
So, the answer is A) Lower then?
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Denny
2 months ago
Definitely, a lower direct capitalization rate makes sense in that situation.
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Deangelo
2 months ago
I agree, if the excess earnings are less persistent, the direct capitalization rate should be lower.
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Johna
2 months ago
But wouldn't higher uncertainty lead to a higher direct capitalization rate?
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Suzi
2 months ago
The longer the uncertainty, the greater the risk, so the capitalization rate should be higher. I'll go with B.
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Veronika
2 months ago
It makes sense to choose B) Greater in this case.
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Garry
2 months ago
I agree, the greater the uncertainty, the higher the capitalization rate should be. B) Greater
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Margret
2 months ago
I disagree, I believe the answer is B) Greater.
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Johna
2 months ago
I think the answer is A) Lower.
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