For an example we learnt in this reading how Sensitivity Analysis and Scenario Analysis can help account for variability in the input variables We can apply these concepts to our regular day to day activities as well I have attached here a simple example of using the sensitivity analysis Download a simple example of using the sensitivity analysis to determine how the monthly mortgage payments can vary for different APRs and loan amounts (Do not use a mortgage example with different numbers or interest rates and submit your answer for this part) Can you think of other examples how you can apply these useful concepts at your workplace or in your personal life NPER 30 years RATE 4 500 PV $ 300,000 00 PMT $1,520 06 FV 0 How sensitive is my monthly payment to changes in the APR RATE $1,520 06 4 000 $ 1,432 25 4 125 $ 1,453 95 4 250 $ 1,475 82 4 375 $ 1,497 86 4 500 $ 1,520 06 4 625 $ 1,542 42 4 750 $ 1,564 94 4 875 $ 1,587 62 5 000 $ 1,610 46 How sensitive is my monthly payment to changes in the APR and loan amount $1,520 06 $ 250,000 00 $ 275,000 00 $ 300,000 00 $ 325,000 00 $ 350,000 00 4 000 $ 1,193 54 $ 1,312 89 $ 1,432 25 $ 1,551 60 $ 1,670 95 4 125 $ 1,211 62 $ 1,332 79 $ 1,453 95 $ 1,575 11 $ 1,696 27 4 250 $ 1,229 85 $ 1,352 83 $ 1,475 82 $ 1,598 80 $ 1,721 79 4 375 $ 1,248 21 $ 1,373 03 $ 1,497 86 $ 1,622 68 $ 1,747 50 4 500 $ 1,266 71 $ 1,393 38 $ 1,520 06 $ 1,646 73 $ 1,773 40 4 625 $ 1,285 35 $ 1,413 88 $ 1,542 42 $ 1,670 95 $ 1,799 49 4 750 $ 1,304 12 $ 1,434 53 $ 1,564 94 $ 1,695 35 $ 1,825 77 4 875 $ 1,323 02 $ 1,455 32 $ 1,587 62 $ 1,719 93 $ 1,852 23 5 000 $ 1,342 05 $ 1,476 26 $ 1,610 46 $ 1,744 67 $ 1,878 88 Or another example Look at your decision of pursuing MBA 1) Would you be able to estimate your future cash flows and the capital investment in your MBA decision cost of an MBA, income lost during the MBA study, estimated future expected salary, growth rate in future salary, etc Once you estimate all cash flows, you can then calculate the IRR of your decision

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Feb 22, 2023

For an example: we learnt in this reading how Sensitivity Analysis and Scenario Analysis can help account for variability in the input variables. We can

For an example: we learnt in this reading how Sensitivity Analysis and Scenario Analysis can help account for variability in the input variables. We can apply these concepts to our regular day-to-day activities as well. I have attached here a simple example of using the sensitivity analysis Download a simple example of using the sensitivity analysis to determine how the monthly mortgage payments can vary for different APRs and loan amounts. (Do not use a mortgage example with different numbers or interest rates and submit your answer for this part).

Can you think of other examples how you can apply these useful concepts at your workplace or in your personal life?

NPER	30	years
RATE	4.500%
PV	$ 300,000.00
PMT	$1,520.06
FV	0

How sensitive is my monthly payment to changes in the APR?
RATE	$1,520.06
4.000%	$ 1,432.25
4.125%	$ 1,453.95
4.250%	$ 1,475.82
4.375%	$ 1,497.86
4.500%	$ 1,520.06
4.625%	$ 1,542.42
4.750%	$ 1,564.94
4.875%	$ 1,587.62
5.000%	$ 1,610.46

How sensitive is my monthly payment to changes in the APR and loan amount?
$1,520.06	$ 250,000.00	$ 275,000.00	$ 300,000.00	$ 325,000.00	$ 350,000.00
4.000%	$ 1,193.54	$ 1,312.89	$ 1,432.25	$ 1,551.60	$ 1,670.95
4.125%	$ 1,211.62	$ 1,332.79	$ 1,453.95	$ 1,575.11	$ 1,696.27
4.250%	$ 1,229.85	$ 1,352.83	$ 1,475.82	$ 1,598.80	$ 1,721.79
4.375%	$ 1,248.21	$ 1,373.03	$ 1,497.86	$ 1,622.68	$ 1,747.50
4.500%	$ 1,266.71	$ 1,393.38	$ 1,520.06	$ 1,646.73	$ 1,773.40
4.625%	$ 1,285.35	$ 1,413.88	$ 1,542.42	$ 1,670.95	$ 1,799.49
4.750%	$ 1,304.12	$ 1,434.53	$ 1,564.94	$ 1,695.35	$ 1,825.77
4.875%	$ 1,323.02	$ 1,455.32	$ 1,587.62	$ 1,719.93	$ 1,852.23
5.000%	$ 1,342.05	$ 1,476.26	$ 1,610.46	$ 1,744.67	$ 1,878.88

Or another example: Look at your decision of pursuing MBA:

1) Would you be able to estimate your future cash flows and the capital investment in your MBA decision? cost of an MBA, income lost during the MBA study, estimated future expected salary, growth rate in future salary, etc. Once you estimate all cash flows, you can then calculate the IRR of your decision.