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Microsoft® Excel Data Analysis and Business Modeling by Wayne L. Winston

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Chapter 58. Introduction to Monte Carlo Simulation

  • Who uses Monte Carlo simulation?

  • What happens when I enter =RAND() in a cell?

  • How can I simulate values of a discrete random variable?

  • How can I simulate values of a normal random variable?

  • How should a greeting card company determine how many cards to produce?

We would like to be able to accurately estimate the probabilities of uncertain events. For example, what is the probability that a new product’s cash flows will have a positive net present value (NPV)? What is the riskiness of our investment portfolio? Monte Carlo simulation enables us to model situations that present uncertainty and play them out thousands of times on a computer.

Note

The name Monte Carlo simulation comes from the fact that during ...

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