Monte Carlo Simulation

A

These are all true.

Monte Carlo simulation is a technique used in finance and other fields to model and analyze the uncertainty and risk associated with a particular decision or investment. It involves running a large number of simulations or iterations based on random sampling to estimate the possible outcomes and probabilities associated with a given set of input variables.

The correct answer is A. All of the answers are correct.

Let's break down each answer choice to understand why it is correct:

A. All of the answers are correct: This answer choice states that all of the other answer choices (B, C, and E) are correct, which is true. Monte Carlo simulation encompasses multiple features and capabilities.

B. Is capable of using probability distributions for variables as input data instead of a single numerical estimate for each variable: Monte Carlo simulation allows for the incorporation of probability distributions for input variables rather than relying on a single fixed value. By using probability distributions, it takes into account the uncertainty and variability associated with each variable, providing a more comprehensive analysis.

C. Produces both an expected NPV (or IRR) and a measure of the riskiness of the NPV or IRR: Monte Carlo simulation generates not only an expected Net Present Value (NPV) or Internal Rate of Return (IRR) but also provides a measure of the riskiness or uncertainty associated with these financial metrics. It helps decision-makers understand the range of possible outcomes and the likelihood of achieving specific results.

E. Can be useful for estimating a project's stand-alone risk: Monte Carlo simulation is indeed useful for estimating a project's stand-alone risk. By considering multiple input variables and their respective probability distributions, it captures the interplay of these variables and their impact on the project's risk. It provides insights into the potential variability in project outcomes and aids in risk assessment and management.

Given that all the answer choices (A, B, C, and E) are correct, the correct answer is A. All of the answers are correct.