Corporate Finance  RiskAnalysis Techniques
There are three riskanalysis techniques that should be known for the exam:
1. Sensitivity Analysis
Sensitivity analysis is simply the method for determining how sensitive our NPV analysis is to changes in our variable assumptions. To begin a sensitivity analysis, we must first come up with a basecase scenario. This is typically the NPV using assumptions we believe are most accurate. From there, we can change various assumptions we had initially made based on other potential assumptions. NPV is then recalculated, and the sensitivity of the NPV based on the change in assumptions is determined. Depending on our confidence in our assumptions, we can determine how potentially risky a project can be.
2. Scenario Analysis
Scenario analysis takes sensitivity analysis a step further. Rather than just looking at the sensitivity of our NPV analysis to changes in our variable assumptions, scenario analysis also looks at the probability distribution of the variables. Like sensitivity analysis, scenario analysis starts with the construction of a base case scenario. From there, other scenarios are considered, known as the "bestcase scenario" and the "worstcase scenario". Probabilities are assigned to the scenarios and computed to arrive at an expected value. Given its simplicity, scenario analysis is one the most frequently used riskanalysis techniques.
3.

Options & Futures
Multivariate Models: The Monte Carlo Analysis
This decisionmaking tool integrates the idea that every decision has an impact on overall risk. 
Fundamental Analysis
What Can The Monte Carlo Simulation Do For Your Portfolio?
A Monte Carlo simulation allows analysts and advisors to convert investment chances into choices. The advantage of Monte Carlo is its ability to factor in a range of values for various inputs. 
Retirement
Planning Your Retirement Using The Monte Carlo Simulation
You can use the Monte Carlo Simulation to improve your retirement planning. 
Fundamental Analysis
Explaining the Monte Carlo Simulation
Monte Carlo simulation is an analysis done by running a number of different variables through a model in order to determine the different outcomes. 
Economics
Capital Budgeting: Which is Better, IRR or NPV?
Using internal rate of return and net present value for capital budgeting evaluations often end in the same result. But there are times when using NPV to discount cash flows makes more sense. 
Personal Finance
An Introduction To Capital Budgeting
We look at three widely used valuation methods and figure out how companies justify spending. 
Fundamental Analysis
Guide To Excel For Finance: Advanced Calculations
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Fundamental Analysis
Create a Monte Carlo Simulation Using Excel
How to apply the Monte Carlo Simulation principles to a game of dice using Microsoft Excel. 
Active Trading Fundamentals
How To Convert Value At Risk To Different Time Periods
Volatility is not the only way to measure risk. Learn about the "new science of risk management". 
Fundamental Analysis
Calculating the Internal Rate of Return Using Excel
The internal rate of return on investments is explained and illustrated in different investment scenarios.

Sensitivity Analysis
Sensitivity analysis is a technique used to determine how different ... 
Net Present Value  NPV
Net Present Value (NPV) is the difference between the present ... 
Interest Rate Sensitivity
A measure of how much the price of a fixedincome asset will ... 
Interest Sensitive Stock
Any stock with a price that is extremely sensitive to changes ... 
Sensitivity
The magnitude of a financial instrument's reaction to changes ... 
Net Present Value Rule
A rule stating that an investment should be accepted if its net ...

Do you discount working capital in net present value (NPV)?
Learn why changes in net working capital (NPV) should be included in net present value calculations for analyzing a project's ... Read Answer >> 
What is the formula for calculating net present value (NPV) in Excel?
Understand how net present value is used to estimate the anticipated profitability of projects or investments and how to ... Read Answer >> 
What are the disadvantages of using net present value as an investment criterion?
While net present value (NPV) calculations are useful when you are valuing investment opportunities, the process is by no ... Read Answer >> 
What variables are most important when making a prediction through sensitivity analysis?
Explore sensitivity analysis and how this method considers different variables to determine a course of action based on statistical ... Read Answer >> 
Do you include working capital in net present value (NPV)?
Discover why it is important to include changes to working capital as a component in calculating the net present value (NPV) ... Read Answer >> 
What is the difference between present value and net present value?
Understand the difference between the present value and net present value calculations and how these formulas are used in ... Read Answer >>