CFA Practice Question

There are 155 practice questions for this study session.

CFA Practice Question

The difference between simulations and other techniques such as scenario analysis and decision trees, is that:

I. there is no constraint on how many variables can be allowed to vary.
II. simulations yield better estimates of expected value than conventional risk-adjusted value models.
III. simulations lead to better decisions.
Correct Answer: I only

I: This is true in theory. In practice, analysts should focus on a few variables that have a significant impact on value.

II is false. They should be quite close.

III is false. This may not always be the case, due to misuses of risk measures.

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