Building Probability Models in Excel Part 5: Modeling an Investment Using Discrete Random Variables
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The viewer will learn how to use a discrete random variable to simulate the return on an investment over a period of years, create a Monte Carlo simulation using the discrete random variable, and create a graph to represent the possible returns over 500 iterations.
Video Steps
1. Modeling a Simple Investment: Type in the amount invested, the possible returns, and the corresponding probabilities
2. Label column A and B “Return” and “Wealth,” respectively in A11 and B10
3. Enter =DISCRINV(RAND(),$B$2:$B$7,$A$2:$A$7) into cell A12 and copy down to cell A21
4. Enter =D2 into cell B11
5. Enter =B11*A12 into cell B12 and copy down to cell B21
6. Create a Monte Carlo Simulation: Enter =B21 into cell B23
7. Enter =B21 into cell B23
8. Click Tools > SimTools > Simulation Table
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