Certified Valuation Analyst (CVA) Practice Exam

Given a specified benefit stream, what weighted-average value corresponds to the provided weights and amounts?

1. $100

2. $80

3. $120

4. $200

The correct answer is: $80

The weighted average value is calculated by taking each amount in the benefit stream, multiplying it by its corresponding weight, summing those products, and then dividing by the total of the weights. The choice of $80 suggests that the calculations performed yielded this weighted average based on the specified weights and amounts. To arrive at this specific value, it's crucial to understand how various components contribute to the final result. For instance, if the amounts and their relative importance (weights) directly lead to a lower weighted average, it would indicate that smaller amounts or lower-weighted items had a predominant effect within the total calculation. In scenarios where the weighted average results in lower amounts, it often indicates that certain values are diluted by higher weights assigned to lesser amounts or by including smaller values more heavily than larger ones. This is an important concept in valuation, as it underscores how different elements can influence the final outcome of a weighted average. Hence, understanding the relevance of both the amounts and their respective weights in the context provided is vital to grasping why $80 is the resultant weighted average for the specified benefit stream.