Bill is considering investing $120,000 among two investments. He will invest $50,000 in the first investment which is known to follow a uniform distribution with a rate of return that varies from 10% to 25%. He will invest $70,000 in the second investment which follows a normal distribution with an average rate of return of 10% and a standard deviation of 3%.
a) Use the following random numbers to simulate return rates for investment 1 for 3 years.
Year RN Rate of Return
1 364
2 895
3 139
b) Use the following random numbers to simulate return rates for investment 2 for 3 years.
Year RN Rate of Rturn
1 1.68
2 0.83
3 2.05
c) Complete the following simulation table to simulate Bill’s investments for a three-year period. Assume that the balances are cumulative.
Investment 1 Investment 2 Combined
Year RN Rate Return Balance RN Rate Return Balance Balance
1 364 1.68
2 895 -0.83
3 139 2.05
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