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Since sensitivity analysis does not incorporate probabilities, it cannot be described as a way of incorporating risk into investment appraisal, which is mentioned in June 2010 answer Q1 c, but I just wonder the reason why it is still included in the solution about ” three ways of incorporating risk into investment appraisal were required to be dicussed.”:-|
What the examiner has written is fair enough. He is not asking for any calculations.
Although strictly risk is when we know the probabilities, it still means that the outcome is not certain and sensitivity is a way of measuring how critical factors are to changes.
You may not like the examiners answer, but his answer is what he wanted and so learn from it – it is the points that are made in his answer that the markers are looking for (and there is no scope to argue with the markers or the examiner 🙂 )
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