Illiquidity Discount Effect

This question tests your understanding of how marketability affects valuation and why private company shares are not directly comparable to public market prices without an adjustment. In investment banking interviews, candidates are expected to know that public trading multiples can embed a liquidity premium, so valuing a private business often requires thinking carefully about whether and how to adjust for the reduced ease of selling an ownership stake. It also checks whether you can explain the logic behind using trading comps for a private company and the corporate finance reasoning that supports valuation discounts for lack of liquidity.