Suppose we compare the difference between the NPV of a financial model in which the means are entered for all input random variables and the NPV of a financial model in which the most likely values are entered for all input random variables.A large difference between the NPV's demonstrate the
A)value at risk (VAR).
B)effect of randomness.
C)flaw of averages.
D)bias of the analyst.

Question

Quizplus · Accepted Answer

The large difference between the NPVs when using means versus most likely values for input random variables illustrates the "flaw of averages," which highlights the misconception that decisions based on average values will yield average outcomes. This concept emphasizes that using average inputs can lead to incorrect or misleading results because it ignores the variability and distribution of the inputs.

Suppose We Compare the Difference Between the NPV of a Financial