Hello everyone, thanks for your valuable time to look at this.
Recently I'm learning to use' Palisade Decision Tools @Risk ' to simulate and optimize data.
Here is the problem:
The problems require that you use @RISK. Use Latin Hypercube sampling and set the seed to 1
for each problem. Do 10,000 trials for each simulation.
Many times you see an advertisement for a mutual fund that says “We’ve beaten the market
in 8 of the last 10 years among our type of mutual fund.” For example, the type might be US
growth funds. Say there are 40 mutual funds in that category. Furthermore, say that any
fund in a category has a 50% chance of beating the market in each year. Actually, it is
probably less than 50% after expenses, but assume it is 50%. Eight out of ten years seems
like a very good and improbable record just by chance. You are interested in estimating that
at least one of the 40 in the category beats the average in 8 out of 10 years. Use @Risk to
estimate this probability.
I know how to calculate the theoretical probability, it's probability basics. P(X=8) = 10C8 * 0.5^10 =0.044,
P(At least 1 of 40 funds beats the average in 8 out of 10 years) =1-(1-0.044)^40 = 0.834,
Am I right?
But I just got confused how to simulate it using @risk. The iteration is 10,000 times. In each iteration, should I simulate a binomial distribution with 10 times? I don't know how to do this simulation. Could you please help me out a little if you knew sth about @Risk? Thanks very much!!
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