Which of the following best describes 'discount for lack of marketability'?

The concept of 'discount for lack of marketability' accurately refers to a reduction in value that is applied to an asset or a business when there are limitations or restrictions on its sellability. This discount is particularly relevant for private companies or illiquid assets that do not have a readily available market.

When an asset is not easily marketable, potential buyers may be less willing to pay the same price as they would for a similar asset that can be readily sold in an open market. Consequently, the discount reflects the uncertainty and risk associated with the lack of liquidity, which can lead to a lower valuation compared to more marketable investments.

This discount is commonly considered in business appraisals and valuations to adjust for the fact that assets may not be easily converted into cash without incurring significant costs or delays. Thus, it plays a critical role in accurately assessing the fair market value of a business or asset that is not expected to be sold quickly or easily.