The use of unobservable inputs such as a pricing model or discounted cash flow is an example of a level ________ estimate.
A) 1
B) 2
C) 3
D) 1 and 3

Question

Quizplus · Accepted Answer

The use of unobservable inputs such as pricing models or discounted cash flow requires significant judgment and subjectivity, making it a level 3 estimate. Level 1 estimates are based on observable inputs such as quoted prices for identical assets, while level 2 estimates use observable inputs that are not identical to the asset being valued. Therefore, the use of unobservable inputs falls under level 3 estimate.

The Use of Unobservable Inputs Such as a Pricing Model