Monte Carlo simulation involves the following steps:
I.Step 1: Modeling the project;
II.Step 2: Specifying probabilities;
III.Step 3: Simulating cash flows;
IV.Step 4: Calculating present value
A)I and II only
B)I, II, and III only
C)II, III, and IV only
D)I, II, III, and IV

Question

Quizplus · Accepted Answer

All four steps are involved in Monte Carlo simulation. In step 1, the project is modeled, in step 2, probabilities are specified, in step 3, cash flows are simulated, and in step 4, present value is calculated. Therefore, all four steps are necessary for a complete Monte Carlo simulation.

Monte Carlo Simulation Involves the Following Steps