- CFA Exams
- CFA Level I Exam
- Topic 4. Corporate Issuers
- Learning Module 19. Capital Budgeting
- Subject 4. Risk Analysis of Capital Investments - Stand-Alone Methods

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**CFA Practice Question**

Monte Carlo simulation is:

A. Equivalent to doing an analysis of the best-case scenario.

B. A risk analysis technique in which probable future events are simulated on a computer, generating estimated rates of return and risk indexes.

C. A risk analysis technique in which the best-case and worst-case scenario are compared to the base-case scenario.

**Explanation:**In Monte Carlo analysis a computer is used to simulate many different values for key input variables to calculate different estimates of the rates of return and risk indexes.

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