US CMA Part 1 · Chapter 6 · Question 19 of 22
What distinguishes Monte Carlo simulation from simple sensitivity analysis?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It repeatedly draws random values for several uncertain inputs from probability distributions to produce a distribution of possible outcomes
Explanation
Monte Carlo simulation runs many trials, each using randomly generated values for the uncertain variables based on their probability distributions. The result is a range of outcomes with associated probabilities, rather than a single point estimate.
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