Exam 16: Simulation Models

Which function is not an @RISK statistical function?

The primary objective in simulation models of bidding for contracts is to determine the optimal bid.

In financial simulation models,the value at risk (VAR)is the 5^th percentile of an output distribution,and it indicates nearly the worst possible outcome.

You would like to develop a simulation model for estimating the time until failure of a product.Which distribution is most appropriate for your model?

Consider a customer whose first car is GM.If profits are discounted at 10% annually,use simulation to estimate the value of this customer to GM over the customer's lifetime.

After a year,what will the market share for each of the three companies be? Assume = 0.10, = 0.15,and = 0.20.(Hint: Use the RISKBINOMIAL function to model how many people switch from A,then how many switch from A to B and from A to C.)

The value at risk (VAR)is typically defined as the _____ percentile of NPV distribution .

The main topic of investigation in marketing and sales models is the

Suppose we have a 0-1 output for whether a bidder wins a contract in a bidding model (0=bidder does not win contract,and 1=bidder wins contract).From the mean of this output,what can we determine?

Financial analysts may attempt to determine which of the following with simulation models?

In a manufacturing model,we might simulate the number of days to produce a batch and the yield from each batch.The number of days would typically be a ____ distribution and the yield would be a ____ distribution.

In financial simulation models,we are typically more interested in the expected NPV of a project than in the extremes of the outcomes.

Assume = 0.10, = 0.15,and = 0.20.Suppose a 1% increase in market share is worth $10,000 per week to company A.Company A believes that for a cost of $1 million per year it can cut the percentage of unsatisfactory juice cartons in half.Is this worthwhile?

Which tasks are considered to be marketing applications of simulation modeling?

In marketing models of customer loyalty,we are typically interested in modeling the rate of customer retention,called churn.

In marketing and sales models,the primary source of uncertainty is the timing of sales.

Suppose we compare the difference between the NPV of a financial model in which the means are entered for all input random variables and the NPV of a financial model in which the most likely values are entered for all input random variables.A large difference between the NPV's demonstrate the

Simulate Amanda's portfolio over the next 30 years and determine how much she can expect to have in her account at the end of that period.At the beginning of each year,compute the beginning balance in Amanda's account.Note that this balance is either 0 (for year 1)or equal to the ending balance of the previous year.The contribution of $5,000 is then added to calculate the new balance.The market return for each year is given by a normal random variable with the parameters above (assume the market returns in each year are independent of the other years).The ending balance for each year is then equal to the beginning balance,augmented by the contribution,and multiplied by (1+Market return).Suppose Amanda will stop investing in the stock market and transfer all of her retirement into a savings account if and when she reaches $500,000.When can she expect to reach this goal?

Estimate the mean and standard deviation of the NPV of this project.Assume that cash flows are discounted at a rate of 10% per year.