Module 7: Simulation Part 2

November 25, 2024

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

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?