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Answer: Data used for bootstrapping must be resampled with replacement.
**B is correct.** In bootstrapping, data are resampled with replacement in order to empirically estimate the sampling distribution. **A is incorrect.** One advantage of bootstrapping over Monte Carlo simulation is that the data does not have to follow any distribution. **C is incorrect.** Same explanation as A. **D is incorrect.** This would be ideal but not always possible.
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A data analyst at a large bank is assessing the valuation of a unique stock option with few known properties. The analyst is considering using simulation to model the option's potential value. The analyst considers whether to use Monte Carlo simulation or bootstrapping to conduct the analysis. Which of the following statements about bootstrapping is correct?
A
Data used for bootstrapping must follow a standard normal distribution.
B
Data used for bootstrapping must be resampled with replacement.
C
Data used for bootstrapping must come from a variable with known properties.
D
Data used for bootstrapping must be resampled such that all possible outcomes in a probability space are present.
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