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Financial ABV Exam
Accredited in Business Valuation (ABV) (Page 13 )

Updated On: 12-Jan-2026
Page 13 of 70
PDF with 344 Questions

The Build-Up model divides the risk premium into its subcomponents and estimates the cost of capital as the sum of the following:
1.A risk-free
2.A risk premium, including one or all of following subcomponents EXCEPT:

  1. An equity risk premium
  2. A size premium
  3. A company-specific risk premium
  4. Investment-specific risk

Answer(s): D



A series of small stock premium studies have been developed by Roger Grabowski and David King. They use eight different measures of size for two major groups (Equity size and Company size). Which of the following is/are measure/s of company size?

  1. Market value of common equity
  2. Book value of common equity
  3. Market value of invested capital
  4. Number of employees

Answer(s): C,D



The assumptions underlying the capital asset pricing model are as follows:

  1. Investors are risk averse
  2. Rational investors seek to hold efficient portfolios-that is, portfolios that are fully diversified
  3. All investors have identical investment time horizons (i.e., expected holding periods)
  4. The rate received from lending money is more than the cost of borrowing money

Answer(s): D



Which of the following assumption is a base for the process of unlevering and relevering betas to an assumed capital structure?

  1. Business interest subject to valuation has the ability to change the capital structure of the subject company
  2. Investors are risk averse
  3. Subject companies are at market value in this process
  4. The amount of debt and equity at market value.

Answer(s): A



It is possible (although not very common) for a security to have a negative beta (i.e. a beta less than zero). Such a beta would indicate that:

  1. It is the result of aggressive securities
  2. Betas for small and publicly traded companies are often unreliable
  3. The returns of these securities are countercyclical to the returns of the board investment market index.
  4. Risk-free return would be greater

Answer(s): C



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