In which of the following cases the sell decision be taken?
Click on the arrows to vote for the correct answer
A. B. C. D.B
In the context of the CTFA exam and the question you provided, the decision to sell an asset depends on the relationship between the intrinsic value and the current market price. Let's go through each answer choice and explain the rationale behind them:
A. Where the intrinsic value is greater than the current market price as the asset is overvalued: This answer suggests that the asset is currently priced below its intrinsic value, indicating that it may be undervalued. In such a case, it might be a good time to consider buying or holding the asset rather than selling it. This answer is incorrect.
B. Where the intrinsic value is lesser than the current market price as the asset is overvalued: This answer suggests that the current market price is higher than the intrinsic value of the asset, implying that the asset may be overvalued. In such a situation, it may be advisable to sell the asset because it could potentially be priced higher than its actual worth. This answer is the correct choice for the sell decision.
C. Where the intrinsic value is equivalent to the current market price as the asset is acquired: This answer suggests that the intrinsic value of the asset is equal to the current market price. If the asset is newly acquired and the intrinsic value is accurately reflected in the market price, it does not necessarily indicate a sell decision. This answer is incorrect.
D. Where the current market price has doubled compared to the intrinsic value as the asset is distributed: This answer states that the current market price is twice the intrinsic value, suggesting that the asset may be overpriced. However, the reasoning that the asset is "distributed" is unclear in this context. Without further clarification, it is difficult to determine the appropriate sell decision based on this answer choice. Therefore, this answer is incorrect.
To summarize, the correct answer in this case would be:
B. Where the intrinsic value is lesser than the current market price as the asset is overvalued.
It is important to note that the context of the question and the specific guidelines provided in the CTFA exam should always be considered when determining the correct answer.