A Key Type of Sensitivity Analysis for Managers Is to Play

question 21

True/False

A key type of sensitivity analysis for managers is to play "what-if" with the cash budget so as to anticipate outcomes and take steps to minimize the effects of shortfalls in cash balances.

---

Definitions:

Volatile

Describes an asset, security, or market characterized by rapid and significant price changes over a short period.

Option

A financial derivative that gives the holder the right, but not the obligation, to buy or sell an asset at an agreed-upon price within a certain period.

Strike Price

The pre-determined price at which the holder of an option can buy (in the case of a call option) or sell (in the case of a put option) the underlying asset.

Exercise Value

The value of an option if it were exercised today, essentially representing the difference between the option’s strike price and the underlying asset's current price.