Sensitivity Analysis

question 73

Multiple Choice

Sensitivity analysis:

• A)looks at the most reasonably optimistic and pessimistic results for a project.
• B)helps identify the variable within a project that presents the greatest forecasting risk.
• C)is used for projects that cannot be analyzed by scenario analysis because the cash flows are unconventional.
• D)is generally conducted prior to scenario analysis just to determine if the range of potential outcomes is acceptable.
• E)illustrates how an increase in operating cash flow caused by changing both the revenue and the costs

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Definitions:

Yield To Maturity

An estimate of the annualized return an investor will receive from a bond, assuming it is held until its maturity date, inclusive of all payments.

Par Value

Par value is the face value of a bond or stock as stated by the issuing company, which may differ from its market value; for stocks, it is often a nominal amount.

Coupon

The interest rate stated on a bond when issued, which is paid by the issuer to the bondholder at specified intervals until maturity.

Yield To Maturity

The total return anticipated on a bond if it is held until it matures, considering both interest payments and capital gains.