Which of the Following Statements Is CORRECT

question 14

Multiple Choice

Which of the following statements is CORRECT?

• A) 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.
• B) Well-diversified stockholders do not need to consider market risk when determining required rates of return.
• C) Market risk is important, but it does not have a direct effect on stock prices because it only affects beta.
• D) Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.
• E) Sensitivity analysis is a good way to measure market risk because it explicitly takes into account diversification effects.

---

Definitions:

Conversion Factors

Multipliers used to convert a quantity expressed in one set of units to an equivalent expressed in another.

Seconds

A unit of time equivalent to one-sixtieth of a minute.

Hours

A unit of time equivalent to 60 minutes or 3600 seconds, used to measure the duration of events.

Psychoanalytic Perspective

A theory of psychology and psychotherapy developed by Sigmund Freud that emphasizes the importance of unconscious processes and childhood experiences in shaping behavior and personality.