Reference no: EM132389649
Question 1:
Suppose you own an expensive car and purchase auto insurance. This insurance has a $1000 excess, that is, if you have an accident and the damage is less than $1000, you pay it out of your pocket. However, if the damage is greater than $1000, you pay the excess amount and the insurance pays the rest. In the current year, there is a probability 0.025 that you will have an accident. It is assumed that the damage amount is normally distributed with mean $3000 and a standard deviation of $750.
a) Give at the top left corner of your spreadsheet all the input variables and parameters used in your model naming properly.
b) Use Excel to simulate the amount you must pay for damages to your car. Run 500 iterations. Draw suitable graphs, summary of the data and comment.
c) Continue the simulation in part (a) by creating a two-way data table giving the amount you pay, for different excess payable ranging from $500 to $2000 in multiples of $500. Now find the average amount you pay, the standard deviation of the amounts you pay, and a 95% confidence interval for the average amount you pay for each excess payable considered. Comment on your findings.
Question 2:
Suppose you have invested 25% of your portfolio in four different stocks. Return on each stock is assumed to be normally distributed. The mean and standard deviation of the annual return on each stock are shown in the file Data for Q3.xlsx. The correlations between the annual
returns on the four stocks are also shown in this file. Simulate your annual return from your portfolio for 200 times.
a) What is the probability that your portfolio’s annual return will exceed 20%?
b) What is the probability that your portfolio will lose money during the year?
Please note You only need the given data on the stocks to answer the question, (corelated variables stuff) to answer the Questions 3.a and 3.b.
You do not have to use those cells B31, B33 and B34 involving @Risk functions to answer these question.
Attachment:- Questions Data.rar
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