Sensitivity Analysis Evaluates the NPV with Respect To

question 41

Multiple Choice

Sensitivity analysis evaluates the NPV with respect to:

• A)changes in the underlying assumptions.
• B)one variable changing while holding the others constant.
• C)different economic conditions.
• D)All of the above.
• E)None of the above.

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Definitions:

Systematic Risk Principle

Principle stating that the expected return on a risky asset depends only on that asset’s systematic risk.

Expected Return

The weighted average of all possible returns for an investment, with each return being weighted by its probability of occurrence.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Opportunity Sets

The range of possible investment opportunities available to an investor, given their resources and risk tolerance.