The Monte Carlo Simulation Method of Estimating Value at Risk

question 35

True/False

The Monte Carlo simulation method of estimating Value at Risk is one of the most flexible methods because it permits the user to assume any probability distribution.

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Definitions:

Minimum Required Return

The lowest acceptable return on an investment, considering the risk and the cost of capital.

Expected Return

The anticipated return on an investment, taking into account the probabilities of each potential outcome.

Equity

The owners' stake in a company, represented by the amount of capital contributed plus any profits or minus any losses.

Debt

Debt represents money borrowed that must be repaid, typically with interest, by the borrower to the lender.