Lesson 14: Random Variables and Stock Market Simulation

March 11, 2019

Review:

• Probability Models
• Dice Simulation
• Portfolio due Wed
  • Lessons 7-10,12-14 (7 lessons total, including today)
  • Min 2 pages, Max 4 pages

Presentation:

• Random Variables
  • Discrete Random Variables
    • Probability distribution table
    • Dice Simulation

    • 

  • Continuous Random Variables
    • Area under a density curve (e.g., Normal Curve)
    • Stock Market Simulation
      • How to simulate a normal distribution in Sheets
      • Using Annual Stock Market Return data

Assignment:

• Watch Video from Unit 20 – Random Variables
• Create a Stock Market Simulation in Sheets using the Monthly return data
  1. Calculate the number of months until your 65th birthday
  2. Generate a simulation with the number of months calculated in step 1.
  3. Use $10,000 as your starting balance
  4. Run a test simulation (or a few) to be sure the numbers are making sense
  5. When ready, run the simulation 30 times and save the ending balance from each simulation (you’ll have 30 separate ending balances).
  6. Calculate the mean and standard deviation of your n=30 ending balances
  7. Make a histogram of your ending balances
  8. Create a portfolio slide summarizing your results