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:

Lease Liability

An obligation representing the present value of future lease payments that a lessee is committed to pay over the lease term.

Mortgage Notes Payable

A legal document indicating the amount of a mortgage loan and the terms under which it is to be repaid.

Contractual Interest Rate

The agreed-upon interest rate specified in a loan or bond contract, which the borrower must pay to the lender.

Market Interest Rate

The prevailing rate of interest determined by supply and demand in the financial markets.