Module 7: Simulation Part 2
April 26, 2021
Review:
- Module 6
- Here’s a video I recorded while helping a student: Chuck-a-Luck Help Session (28 min)
Presentation:
- Video Lecture (38 min)
- In the beginning I refer to the Chuck-a-Luck Help Session video
- Random Variables
- Discrete Random Variables
- Probability distribution table
- Dice Simulation
- Continuous Random Variables
- Stock Market simulation next week
- Discrete Random Variables
Assignment:
- Stock Market Simulation in Sheets
- Use Annual Stock Market Return data as a starting point
- Assumptions
- stock market returns are normally distributed
- mean = 11.88%
- standard deviation = 19.76%
- Modifications Part 1
- Generate a 40-year simulation (instead of 30)
- Modify the simulation to add $1,000 to the balance each year
- Make a histogram of your ending balances
- Modifications Part 2
- Add a “fixed income” (bonds) component to your simulation
- Assumptions
- bond market returns are normally distributed
- mean = 7.88%
- standard deviation = 6.86%
- Your “portfolio” should be 60% stocks and 40% bonds
- How does the distribution of ending balances change?
- Submit your Sheets link or Excel file here