Derivation of the formula for DLOC

CFA Level II Equities
#1

Can anyone help derive the formula for DLOC

DLOC = 1 - (1/(1+control premium))

Thanks!

#2

They start with the (perhaps dubious) assumption that:

Price with control / Normal share price = Normal share price / Price without control

They write,

Price with control / Normal share price = 1 + control premium

and,

Price without control / Normal share price = 1 − DLOC

Then,

1 + control premium = 1 / (1 − DLOC)

1 − DLOC = 1 / (1 + control premium)

DLOC = 1 − (1 / (1 + control premium))

1 Like
#3

Thank you, great explanation!

#4

My pleasure.

#5

Clear explanation. I screen shot, print and paste into my physical notebook your beauties for organized reference.