Blockage Discounts

The fair market value of common stock in a publicly traded company is easy to obtain using market information. However, when the shares of publicly traded common stock represent a large block of stock (relative to its average daily trading volume), consideration must be given to the potential impact of such a large block of public stock. The trading volume in the open market may not be large enough to absorb the sale of the block of stock held by a particular owner without creating major downward pressure on the price of the stock. Such sale could cause the value of the block of stock to be reduced. Such reduction in the value of the block of stock is commonly referred to as a “blockage discount.” This reduction in the price of the block of stock is a result of the law of supply and demand. Economic theory dictates that when there is a given level of demand for a stock of a public company at a certain price, and if the available supply of that stock is increased, this additional supply of stock in the public company will only be bought at a reduced price that is sufficiently lower to stimulate additional demand for it by buyers.


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Arlington, VA 22201


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