Question

Historical data indicate that a student’s income for any month of school from work, parents, scholarships, and loans is consistent with the following probability distribution:

Income Probability

$750 0.20

$950 0.36

$1150 0.30

$1350 0.14

Expenses for the same student are believed to be consistent with the following probability distribution:

Expense Probability

$900 0.40

$1000 0.25

$1100 0.20

$1200 0.15

Assuming the student begins the school year with a balance of $1200, use Excel to simulate 12 months of activity and to predict the position of the student at the end of the year.

Answer 1

SOLUTION:

The answer is 1900.

Here is the explanation.

In the U column, a random number is generated from U(0,1)

To generate from the income distribution,

we get 750 if U<0.2

we get 950 if 0.2<U<0.56

we get 1150 if 0.56<U<0.86

we get 1350 if 0.86<U<1

To generate from the expense distribution,

we get 900 if U<0.4

we get 1000 if 0.4<U<0.65

we get 1100 if 0.64<U<0.85

we get 1200 if 0.85<U<1.00

Here is the link of the excel file:

https://drive.google.com/file/d/0B5GF0YjRTNDRUWpNNEs1UzM1STA/view?usp=sharing