Exam 16: Simulation Models

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.)

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?

The executive thinks the growth rate could shrink to 7% per year if the company has growing pains,but on the other hand it could be as high as 15% per year if the company prospers.What is the expected value of the stock options in those cases?

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

In investment models,a useful approach for generating future returns and inflation factors from historical data is:

In bidding models,the simulation input variable is the number of competitors who will bid.

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

Suppose GM could raise it customer satisfaction to 85%,to match Toyota's.What would the customer NPV be in that case?

Perform a simulation with this model.What is the expected NPV? What is the standard deviation?

In a manufacturing setting,a discrete distribution is natural for modeling the number of days to produce a batch,and a continuous distribution is appropriate for modeling the yield from a batch.

RISKTARGET is a function that allows us to determine the cumulative probability of a particular value in an output distribution,such as the probability of meeting a due date in manufacturing.

Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be.

We can use the RISKSIMTABLE function to summarize the results of a single simulation of product lifetime.

Briefly explain why designing the plant for the expected capacity is clearly not the optimal solution.

What is the probability of winning for the conservative bidder?

What is the probability that your portfolio will lose money during the course of a year?

Next,suppose Amanda's broker thinks the stock market may be too risky and has advised her to diversity by investing some of her money in money market funds and bonds.He estimates that this will lower her expected annual return to 10% per year,but will also lower the standard deviation to 10%.What can she expect to have in her account after thirty years under this investing strategy?

Which simulation yields the largest median NPV?

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.

The executive also fairly confident that the company really wants to hire her,and she thinks she may be able to negotiate a lower strike price ($40)and a larger number of shares in the option (3,00 shares).What would be the value of the options in that case?