33:136:386 Lecture Notes - Lecture 7: Future Interest, Random Variable, Espn Bottomline

• School: Rutgers University
• Department: Business Analytics and Information Technology
• Course: 33:136:386
• Professor: Markowitz

Document Summary

Intro: value for one or more cells representing independent variable is unknown/uncertain, as a result, there is uncertainty about the value the dependent variable will assume, simulations can analyze these models** Random variables and risk: random variable is any variable whose value cannot be predicted or set with certainty, many input cells in spreadsheets are random variables. Expected demand: decisions made on the basis of uncertain information often involve risk, risk implies potential for loss. Why analyze risk: plugging values for uncertain cells tells us nothing about variability of the performance, investment of is expected to return ,000. Could range from ,000 - ,000 or -,000 - ,000. Methods of risk analysis: best case/worst case analysis. Best case - plug the most optimistic values for each uncertain cell. Worst case - plug the most pessimistic values for each uncertain cell. Doesn"t show distribution of possible outcomes within the best and worst case or likelihood of happening: what-if analysis.