ECONOMICS

Detailed explanation-1: -Sensitivity analysis is a financial model that determines how target variables are affected based on changes in other variables known as input variables. It is a way to predict the outcome of a decision given a certain range of variables.

Detailed explanation-2: -Sensitivity analysis should be undertaken using two approaches: scenario analysis and switching values.

Detailed explanation-3: -The sensitivity is calculated by dividing the percentage change in output by the percentage change in input.

Detailed explanation-4: -Scenario analysis is a behavioral approach that evaluates the impact on a firm’s return through simultaneous changes in a number of variables. Scenario analysis is a behavioral approach that uses a number of possible outcomes to asses the variability of returns.