What are some examples of sensitivity analysis?
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What are some examples of sensitivity analysis?
Sensitivity analysis is a technique used to determine how different values of an independent variable affect a particular dependent variable. Some examples include financial modeling, project management, and environmental impact assessments.
Can you give me a specific example in finance?
Sure! In finance, sensitivity analysis can be used to assess how changes in interest rates affect the net present value (NPV) of an investment. For instance, if interest rates increase by 1%, the NPV may decrease significantly, indicating the investment's sensitivity to interest rate fluctuations.
What about in environmental studies?
In environmental studies, sensitivity analysis can evaluate how changes in pollutant levels impact ecosystem health. For example, researchers might analyze how varying levels of nitrogen runoff affect water quality in a lake.
Are there any tools I can use for sensitivity analysis?
Yes, there are several tools available for sensitivity analysis, including Excel, MATLAB, and specialized software like @RISK and Crystal Ball.
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