Exam 16: Simulation Models

Churn is an example of the type of uncertain variable we deal with in financial models.

Although we can determine the optimal bid and the expected profit from that bid in a bidding simulation,we usually cannot determine the probability of winning.

In a marketing and sales model,which of the following might be a good choice for a discrete distribution to model the random timing of sales?

Using @RISK summary functions such as RISKMEAN,RISKPERCENTILE,and others allows us to capture simulation results in the same worksheet as the simulation model.

A key input variable in many marketing models of customer loyalty is the:

Which of the following functions is often required in simulations where we must model a process over multiple time periods and must deal with uncertain timing of events?

Which of the following is typically not an application of simulation models?

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 we can tell:

In a bidding model,once we have the bidding strategy that maximizes the expected profit,we no longer should consider the bidders risk aversion.

The @RISK function RISKDUNIFORM in the form = RISKDUNIFORM ({List})generates a random member of a given list,so that each member of the list has the same chance of being chosen.

The main issue in marketing and sales models is:

Which simulation yields the largest median NPV? In this example we are estimating the net present value of introducing a new drug to market.We have the following information about the market: · The market size is 1,000,000 and is projected to grow at an average 5%,with a standard deviation of 1%,over the next ten years. · The market share captured at entry is projected to be between 20% and 70%,with most likely value 40%. · Three competitors may enter the market in the future,with each one having a 40% probability of entry per year. · For each new competitor per year,the market share goes down by 20%. · The marginal profit per unit is $1.80. · We want to evaluate the project over ten years,using a discount rate of 10%.

Financial analysts often investigate the value at risk (VAR)with simulation models.VAR is an indicator of:

RISKMAX and RISKMIN are can be used to find the probability of meeting a given due date in a manufacturing model.

Considering your answers for Questions 78 through 83,please state how many units of capacity you think the plant should be built for and explain why. An executive has been offered a compensation package that includes stock options.The current stock price is $30/share,and she has been offered a call option on 2000 shares,which can be exercised five years from now at a price of $42/share.Therefore,if the market price of the shares in five years is more than $42/share,she can buy 2000 shares at $42/share,and then immediately sell the shares at the market price,earning a riskless profit.If the market price of the shares was less than $42/share,she will obviously choose not to exercise the option,and would have zero profit. Assume the price of the stock can be modeled as exponential growth (compounding),which could be calculated as: $P _ { t + 1 } = P _ { t } e ^ { r + a N ( 0,1 ) }$ where, $P _ { t + 1 }$ stock price in next period (i.e. ,price next year) $P _ { t }$ current stock price $f$ annual growth rate of the stock price,which has been 10% $\sigma$ annual volatility,which is estimated to be 18% $N ( 0,1 ) =$ normal random variable with mean of zero and standard deviation of 1

In investment models,we typically must simulate the random investment weights