What is meant by Fair Market Value?

Fair Market Value refers to the price at which an asset would trade in a competitive auction setting, where both the buyer and seller are willing entities acting in their own best interest. This definition encapsulates the essence of the market-driven forces that govern transactions. It implies that the price reflects a mutual agreement between the buyer and seller, free from any pressure, and showcases the true worth of an asset as determined by current market conditions.

In this context, the correct choice signifies that both parties are informed and willing, representing a genuine exchange in a transparent and accessible marketplace. This definition is crucial for various applications such as valuing properties, financial reporting, and tax purposes, aiming to ensure fairness in valuations across different scenarios.

The other options address concepts that are either not relevant to market dynamics or are focused on determinants that do not accurately reflect the fair market principles. Government regulations may influence prices but do not dictate market exchanges. The cost of production focuses on the expenses incurred rather than what the market price would be. Tax assessments might estimate value, but they often don't correspond to real-time market conditions and can vary widely from fair market value.