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:

Least Risky

Describes an option or decision that poses the smallest potential for loss, harm, or adverse outcomes.

Joint Venture

A business arrangement where two or more parties agree to pool their resources for the purpose of accomplishing a specific task or project.

Franchising

A method of conducting business wherein a franchisor licenses trademarks and proven methods of doing business to a franchisee in exchange for a recurring payment, and often a percentage of the franchisee's revenue.

Marketing Analytics

The practice of measuring, managing, and analyzing market performance.