Which of the Following Statements Is CORRECT

question 62

Multiple Choice

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.

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Definitions:

Stock

Ownership shares in a corporation, representing a claim on part of the corporation's assets and earnings.

Stockbroker

A person licensed to assist investors in buying and selling securities for a commission.

Securities Analyst

A financial professional who conducts research, analyzes securities, and provides investment recommendations based on their findings.

Market Maker

A firm or individual who actively quotes two-sided markets, providing offers to buy and sell securities, thus facilitating liquidity in the markets.