11. Which of the following statements is CORRECT? A Sensitivity analysis is a go

Question

11. Which of the following statements is CORRECT? A Sensitivity analysis is a good way to measure market risk because it explicitly takes into account diversification effects. B One advantage of sensitivity analysis relative to scenario analysis is that it explicitly takes into account the probability of specific effects occurring, whereas scenario analysis cannot account for probabilities. C Well-diversified stockholders do not need to consider market risk when determining required rates of return. D Market risk is important, but it does not have a direct effect on stock prices because it only affects beta. E Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.

Explanation / Answer

E Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.

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