Mastering Financial Modelling in Microsoft Excel 3rd edn, 3rd Edition

16

Risk analysis

Introduction

Risk assessment process and analysis

Risk adjusted rate

Variation and standard deviation

Coefficient of variation

Certainty equivalents

Real options

Simulation

Summary

INTRODUCTION

The previous chapter discussed the project investment model (MFM3_15_Project_Model) and calculated the return measures such as payback and net present value. This chapter discusses further schedules in the file MFM3_16_Project_Risk concerned with risk and sensitivity. There is usually no possibility of a reasonable return without taking some risk and there is a tendency in modelling to believe that the cash flows from investment models are somehow ‘real’ and ‘achievable’. The values input to the model may or may not occur at the set ...