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HomeHomework HelpfinanceMarket Value vs Fair Value

Market Value vs Fair Value

Market value refers to the actual price at which an asset can be bought or sold in the marketplace, while fair value is an estimate of the true value of an asset based on various factors such as recent transactions and future benefits.

intermediate
2 hours
Finance
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Overview

Market value and fair value are essential concepts in finance that help investors assess the worth of assets. Market value reflects the price at which an asset can be sold in the current market, influenced by supply and demand dynamics. In contrast, fair value is a more intrinsic measure, taking int...

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Key Terms

Market Value
The price at which an asset would sell in the current market.

Example: The market value of a house is determined by recent sales of similar properties.

Fair Value
An estimate of the asset's worth based on its intrinsic qualities.

Example: A company's fair value might be assessed using discounted cash flow analysis.

Valuation
The process of determining the current worth of an asset.

Example: Valuation is crucial for mergers and acquisitions.

Intrinsic Value
The perceived or calculated value of an asset, independent of its market value.

Example: Investors often look for stocks trading below their intrinsic value.

Asset-Based Valuation
A method that calculates the value of a company based on its assets.

Example: Real estate companies often use asset-based valuation.

Discounted Cash Flow (DCF)
A valuation method that estimates the value of an investment based on its expected future cash flows.

Example: DCF is commonly used to value startups.

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Key Concepts

Market ValueFair ValueValuation MethodsInvestment Analysis