NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research
Which of the following is the main limitation of relying on a single-point estimate in a research forecast, which scenario analysis tries to address?
A single-point estimate hides the uncertainty around possible outcomes because it presents one number as if it were certain. Scenario analysis addresses this by developing base, optimistic and pessimistic cases, giving readers a sense of the range of potential results.
- AIt ignores the time value of money
- BIt hides the uncertainty around possible outcomesCorrect
- CIt cannot be used for equity securities
- DIt requires historical price data only
Explanation
A single-point estimate gives one number and conceals the range of possible outcomes. Scenario analysis (base, best, worst case) shows that range. The other options are unrelated to this limitation.
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