Question

What is the primary difference between a sensitivity and a scenario analysis?

A) in a sensitivity analysis, you allow one assumption to differ from the expect level at a time. In a scenario analysis, you allow at least two assumptions to differ from the expected level at the same time.

B)In a sensitivity analysis, you allow one assumption to differ from the expected level at a time. In a scenario analysis, you solve for the value of one assumption that would lead the project to have a negative value.

C)In a sensitivity analysis, you solve for the value of one assumption that would lead the project to have a negative value. In a scenario analysis, you allow one assumption to differ from the expected level at a time.

D)In a sensitivity analysis, you allow at least two assumptions to differ from the expected level at the same time. In a scenario analysis, you allow one assumption to differ from the expect level at a time.

E)In a sensitivity analysis, you allow at least two assumptions to differ from the expected level at the same time. In a scenario analysis, you solve for the value of one assumption that would lead the project to have a negative value.

F)In a sensitivity analysis, you solve for the value of one assumption that would lead the project to have a negative value. In a scenario analysis, you allow at least two assumptions to differ from the expected level at the same time.

Answer 1

Option A is correct.

The difference between the two methods is that sensitivity analysis examines the effect of change in just one variable at a time. On the other hand, scenario analysis assesses the effect of change in multiple (atleast two) at the same time.