Definition
Fair value is the price at which an asset would trade between willing buyers and sellers with full knowledge. It's used in accounting (GAAP/IFRS), investment analysis, and derivatives pricing. Unlike intrinsic value, fair value often implies market-based inputs.
Formula
Varies by asset type and valuation method
Example
A stock's fair value might be determined as $45 based on peer comparison, DCF, and precedent transactions, while it currently trades at $40 (11% discount to fair value).
FAQ
What is Fair Value?
The reasonable price for an asset based on agreed-upon valuation methods.
How do you calculate Fair Value?
A common formula for Fair Value is: Varies by asset type and valuation method
Why is Fair Value important?
Fair Value helps investors evaluate valuation and make more informed decisions.