Sensitivity Analysis Reference
The instructions as well as the exercise for Sensitivity Analysis dont make any sense to me. I dont understand what it is I am supposed to be comparing. I also dont understand what cell I am supposed to use as a reference. Can someone please clarify the exercise?
Thanks for reaching out.
Let's try to clarify the confusion.
Think of the following situation. You borrow 1,000 today and you want to calculate how much you'll owe in 5 years.
So, you need to use the formula:
Present value * (1 + i ) ^5 = Future amount (this is a financial formula that allows us to make this calculation).
For a borrowing period of 5 years and an interest rate of 10%, you'll owe 1611.
However, what if the interest rate is 9% or 8%? And what if the borrowing period is 4 instead of 5 years?
To get an idea about different possible values in different scenarios, we can use sensitivity analysis as shown in the lecture.
Hope this makes it clearer! Apologies for the confusion.