Question 1

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.

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Question 2

Suppose first that all three bidders are aware of the winner's curse so they have decided (independently) to bid 10% below their estimated values. Using 1000 iterations report the expected profit (or loss) to the winner.

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Question 3

Suppose that Coke^® and Pepsi^® are in a fierce competition for the cola market. Each week each person in the market buys one case of Coke^® or Pepsi^®. If the person's last purchase was Coke®, there is a 0.80 probability that this person's next purchase will be Coke^®; otherwise, it will be Pepsi^®. (We are considering only two brands in the market in this scenario.) Similarly, if the person's last purchase was Pepsi^®, there is a 0.90 probability that this person's next purchase will be Pepsi^®; otherwise, it will be Coke^®. Currently half of all people purchase Coke^®, and the other half purchase Pepsi^®. Simulate one year of sales in the cola market and estimate each company's average weekly market share. Do this by assuming that the total market size is fixed at 100 customers. (Hint: Use the RISKBINOMIAL function.)

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Question 4

What if the GM satisfaction rate is raised further to 90%. What would the customer NPV be in that case?

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Question 5

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).
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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 is the standard deviation of the ending balance? What does the distribution look like now? What should Amanda infer from this?

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Question 6

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Which simulation yields the largest median NPV?

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Question 7

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Which simulation has the most risk as measured by spread or dispersion in the data? Please state clearly what statistic you used to answer this question.

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Question 8

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).
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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?

Accepted Answer

The answer of Simulate Amanda's portfolio over the next 30...

Question 9

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Are there any simulations which indicated there was a chance of getting negative NPV? Briefly explain in one sentence.

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Question 10

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be.

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Question 11

Perform a simulation assuming the plant will be designed to meet the expected demand. What is the NPV in that case?

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Question 12

Assume that one of the bidders bids 20% below his or her estimated value, while the other two bidders bid 10% below their estimated values. Using 1000 iterations, report the expected profit or loss to the conservative bidder. What is the probability of winning for the conservative bidder?

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Question 13

Suppose that a customer satisfaction firm approaches GM with a proposal to increase satisfaction from the current 80% rate to $85% through a low cost maintenance program that will cost GM $300 per customer. Would the program be worth it?

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Question 14

Assume that one of the bidders bids 20% below his or her estimated value, while the other two bidders bid 10% below their estimated values. Using 1000 iterations, report the expected profit or loss to the conservative bidder.

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The answer of Assume that one of the bidders bids...

Question 15

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

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Question 16

What is the probability of winning for each bidder in the above scenario?

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Question 17

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?

Accepted Answer

The answer of Assume  = 0.10,  = 0.15,...

Question 18

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).
​
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%. Suppose again that 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 under the more conservative investing strategy?

Accepted Answer

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Question 19

Suppose that a recent study shows that each week each of 300 families buys a gallon of apple juice from company A, B, or C. Let  denote the probability that a gallon produced by company A is of unsatisfactory quality, and define  and  similarly for companies B and C. If the last gallon of juice purchased by a family is satisfactory, the next week they will purchase a gallon of juice from the same company. If the last gallon of juice purchased by a family is not satisfactory, then the family will purchase a gallon from a competitor. Consider one week in which A families have purchased juice A, B families have purchased juice B, and C families have purchased juice C. Assume that families that switch brands during a period are allocated to the remaining brands in a manner that is proportional to the current market shares of the other brands. Thus, if a customer switches from brand A, there is probability B/(B + C) that he will switch to brand B and probability C/(B + C) that he will switch to brand C. Suppose that the market is currently divided equally: 100 families for each of the three brands.
-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.)

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The answer of Suppose that a recent study shows that...

Question 20

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).
​
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 is the probability that Amanda will have less than $500,000 in her retirement account after 30 years under the more conservative investing strategy?

Accepted Answer

The answer of Simulate Amanda's portfolio over the next 30...

Quiz 16: Simulation Models

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.

Suppose first that all three bidders are aware of the winner's curse so they have decided (independently) to bid 10% below their estimated values. Using 1000 iterations report the expected profit (or loss) to the winner.

What if the GM satisfaction rate is raised further to 90%. What would the customer NPV be in that case?

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be. Which simulation yields the largest median NPV?

Perform a simulation assuming the plant will be designed to meet the expected demand. Use RISKSIMTABLE with a range of possible values to help the firm decide what the plant capacity should be.

Perform a simulation assuming the plant will be designed to meet the expected demand. What is the NPV in that case?

Assume that one of the bidders bids 20% below his or her estimated value, while the other two bidders bid 10% below their estimated values. Using 1000 iterations, report the expected profit or loss to the conservative bidder. What is the probability of winning for the conservative bidder?

Suppose that a customer satisfaction firm approaches GM with a proposal to increase satisfaction from the current 80% rate to $85% through a low cost maintenance program that will cost GM $300 per customer. Would the program be worth it?

Assume that one of the bidders bids 20% below his or her estimated value, while the other two bidders bid 10% below their estimated values. Using 1000 iterations, report the expected profit or loss to the conservative bidder.

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

What is the probability of winning for each bidder in the above scenario?

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?