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.

Answer rating: 100% (QA)

Yes those are great examples of how sensitivity analysis and scenario analysis can be applied in per... View the full answer