CFA Practice Question

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CFA Practice Question

Which of the following statements is true about scenario analysis?

A. Scenario analysis is probably the most widely used risk analysis technique.
B. In scenario analysis, the analyst asks managers to specify the least "favorable" set of circumstances and the most "favorable" set of circumstances. Then the NPV under the bad and good scenarios are calculated and compared to the expected NPV.
C. In scenario analysis, sales and other input variables are set equal to their most likely values.
Correct Answer: B

In scenario analysis, NPV is calculated for the best-case and worst-case scenario. Then their NPV is compared to the NPV of the base-case scenario.

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