Discount for lack of control and marketability

CFA Level III Portfolio Management
#1

Example -7 - CFAI (Reading 25)

Not sure why are the text is not computing the value using the following formula covered in level 2.

1- (1- DLOC ) (1-DLOM) = total discount

1-(1-0.20)(1-0.25) = 0.40

40% discount applied to 50 = 30 i.e. value computed.

I get the same result unless I am missing a point.

Thanks

#2

I do not have the material in front of me, but they could simply be estimating by addition instead of multiplication.

#3

Without a lot of scrutiny. I see your point, a quick glance over seems like they’re doing it the long way for some reason, almost like the extended DuPont… I’m with you, 1- (1- DLOC ) (1-DLOM) = total discount approach works best for me.

If others see it differently, please chime in.

#4

I noticed things like this cropping up through the levels - just more than one way to do it!

#5

Agree. As cheesy as it may sound, it’s good that they point out there’s more than one way to skin a cat. Makes it easier on exam day with all the twists and all.

#6

Many thanks.

#7

DLOC and DLOM kid.