<

Still celebrating National IT Professionals Day with 3 months of free Premium Membership. Use Code ITDAY17

x

Building Probability Models in Excel Part 7: Modeling a Correlated Two-Fund Investment

Posted on
6,599 Points
599 Views
Last Modified:
Experience Level: Beginner
6:12
The viewer will learn how to create two correlated normally distributed random variables in Excel, use a normal distribution to simulate the return on different levels of investment in each of the two funds over a period of ten years, and, create a Monte Carlo simulation using the simulated returns.

Video Steps

1. Modeling a Simple Investment: Type in the means and standard deviations of the return of both of the funds, along with the correlation coefficient

2. Select B7:C7 and type =CORAND($B$5), then press Command+Shift+Enter

3. Copy down to row 16

4. Label the returns of fund 1 and fund 2

5. Enter =EXP(NORMINV(B7,$B$2,$B$3)) into cell E7 and copy down to E16

6. Enter =EXP(NORMINV(C7,$C$2,$C$3)) into cell F7 and copy down to F16

7. Label the $1 investment into fund 1 and fund 2

8. Enter =H6*E7 into cell H7 and =I6*F7 into cell I7 then copy both down to row 16

9. Enter =H16 into cell B25 and =I16 into cell C25

10. Select A25:C524 then click ToolsSimToolsSimulation Table

0
Comment
Author:Toby Reaper
1 Comment
 

Expert Comment

by:Richard Shaw
In the SIM table (A25: A524) -- what is the meaning and use of the column A data?
0

Featured Post

Migrating Your Company's PCs

To keep pace with competitors, businesses must keep employees productive, and that means providing them with the latest technology. This document provides the tips and tricks you need to help you migrate an outdated PC fleet to new desktops, laptops, and tablets.

Join & Write a Comment

This article describes how you can use Custom Document Properties to store settings and other information in your workbook so that they will be available the next time you open the workbook.
Ever visit a website where you spotted a really cool looking Font, yet couldn't figure out which font family it belonged to, or how to get a copy of it for your own use? This article explains the process of doing exactly that, as well as showing how…

Keep in touch with Experts Exchange

Tech news and trends delivered to your inbox every month