Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) Well-diversified stockholders do not need to consider market risk when determining required rates of return.
• C) Market risk is important, but it does not have a direct effect on stock prices because it only affects beta.
• D) Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.
• E) Sensitivity analysis is a good way to measure market risk because it explicitly takes into account diversification effects.

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Definitions:

Residual Value

The estimated value of an asset at the end of its useful life, often used in computing depreciation or lease payments.

Depletion Rate

A measure used in accounting to allocate the cost of extracting natural resources, such as timber, minerals, and oil, from the earth over the period of their extraction.

Oil Well

A drilling operation that extracts petroleum from the ground.

Depletion Rate

The rate at which natural resources are consumed or used, often applied in accounting to allocate the cost of a natural resource over its useful life.